By Eric Tashlein
Your Finances
Eric Tashlein.
Retirement is one thing you want to get right. Whether you’re a highly compensated corporate executive or a hard-working employee, you are likely to retire only once. Following are some dos and don’ts for effective retirement planning:
– Do maximize your retirement accounts. For many people, a 401(k) plan with a company match is the greatest savings opportunity they will ever have. Once you maximize your contributions there, look to other options depending on your income levels. For example, you may also be eligible to open a Roth IRA. If you’re an executive, you need to be vigilant and stay on top of stock option planning decisions. With so many factors that can enhance or detract from your retirement accounts, establishing a wealth management plan with a financial planner is a smart idea.
– Do focus on boosting your income and savings. Earn as much money as you can early in your career and save as much as you can. Write out how much you spend vs. how you save for at least three months, to get a handle on where your money is going. Make changes as required to get your savings rate up to at least 15 percent of your income.
– Do create a comprehensive financial plan. A solid financial plan provides a roadmap not only for long-term decisions but for daily decisions as well. Start by thinking about your life goals, then establish a plan that includes budgeting, investments, tax planning and retirement planning. A financial planner can help with this process.
– Don’t carry unnecessary debt. Debt is the natural enemy of retirement savings, because every dollar you spend today to settle past debt should be going toward investment in your future. Make sure you assume mortgage and car debt levels that are appropriate to your income level. Avoid building credit card debt. Most millionaires got wealthy by living below, not beyond, their means.
– Don’t skimp on insurance. Among the biggest threats to your retirement years are high healthcare costs. You can offset much of that risk by purchasing adequate health insurance, disability, life and long-term care insurance. Also, have your property and casualty agent do a thorough review of your home and auto policies to eliminate holes and possible areas of liability. For example, your agent may suggest upping the amount of your umbrella policy.
– Don’t overpay taxes. Capital gains and income taxes cut into investment returns. To combat this retirement threat, make sure your taxable retirement accounts utilize tax-efficient investments, especially if your tax bracket is over 20 percent.
– Don’t ignore your financial plan. Human nature can upset the most carefully laid plans. Just because you say you are going on a diet doesn’t mean the pounds will come off. You have to actually change your eating and lifestyle habits day to day and hour by hour. It’s the same with a financial plan: you can create a wonderful plan and write it up in great detail, but if you don’t follow the plan it won’t do you a lot of good. Follow your plan, and your future retired self will be much better off.
Eric Tashlein is a Certified Financial Planner professional™ and founding Principal of Connecticut Capital Management Group, LLC, 2 Schooner Lane, Suite 1-12, in Milford. He can be reached at 203-877-1520 or through connecticutcapital.com. This is for informational purposes only and should not be construed as personalized investment advice or legal/tax advice.