10:27 AM EDT, May 28, 2012
5 DON'Ts and DOs for helping Boomers (and your) retirement savings go the distance:
DON'T take your Social Security at 62.
For years, individuals have been accustomed to taking Social Security benefits at the earliest age of eligibility. These benefits are already available to many boomers and are becoming available to more boomers each day, but benefactor beware … when you decide to take benefits will have an impact on how much those monthly benefits will be going forward. By taking early benefits now, you could potentially be cheating yourself out of thousands of dollars later, likely at the time when you will need the money most.
DO Try to live from other savings before tapping into Social Security. If you can wait until you're 70 years old, for example, anticipate 75 to 80 percent more than what you would have received by starting withdrawals at age 62.
DON'T overlook inflation.
Don't let the value of your dollars weaken. The average rate of inflation is around three percent each year. For someone facing a 20-year retirement, failure to plan for the decreasing value of the dollar can have a dramatic impact on their spending power as they age. It would take roughly $1.70 today to afford what cost $1.00 in 1990. The purchasing power of a dollar has gone down quite a bit, and will likely continue to do so over the next 20 years.
DO plan for inflation and make sure your retirement savings is at least growing at the average rate of inflation. Otherwise, with minimal earnings, and after taxes, your savings could be costing you money!
DON'T ignore the rising costs of long-term care.
On average, seven out of every 10 people require some form of long-term care as they age. Saving enough for retirement, only to have it wiped out due to the high costs of catastrophic or extended care, could be financially distressing for a retiree and their family. If ever faced with requiring some form of assisted living or long-term nursing home care during retirement in Chicago, plan to have an additional $50,000 to $77,000 per year to afford these expenses.
DO look into long-term care insurance and/or long-term care riders. It has become more affordable and more accessible as an add-on to other insurance products. Having it can mean the difference between maintaining your lifestyle or entering into poverty during retirement.
DON'T overexpose your retirement assets to risk.
Although the stock market seems to be improving, boomer investors should all have learned a lesson when the markets took a tumble in 2008. Nearly $2 trillion was lost in retirement accounts when the market turned, and according to a study released in 2011 by the Employee Benefit Research Institute, as many as 14 percent of households that were on track for retirement before the 2008 financial crisis are now at risk. To have saved and planned for retirement, only to lose account value (and retirement aspirations) to the volatility of the stock market could be financially and emotionally devastating.
DO make sure that your investments match your goals. The closer you get to retirement, the more conservative you should be in your investment strategy, especially when it comes to your retirement savings.
DON'T assume the tax cut extensions will extend beyond 2012.
Tax cuts were extended through 2012, which means much reprieve for American taxpayers. However, the federal debt continues to rise, and the proposed strategies to stabilize the federal debt include eliminating tax breaks and possibly increasing taxes even further. The impact a dramatic rise in taxes could have on a boomer's retirement could be tremendous, especially when being taxed on retirement income withdrawals. For example, a retiree living on $40,000 of income today would pay around $7,115 in taxes, but paid $7,951 in taxes before the cuts. If cuts are eliminated and taxes then increased, coupled with inflation, this could have a substantial negative impact on the spending ability of a retiree in the future.
DO consider a Roth IRA or other vehicles that will allow you to pay taxes on the contribution (at today's lower tax rates) rather than on the withdrawal, when tax rates are still to be determined.
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