5 retirement tips for 2018 – and beyond – The Motley Fool

If you are worried about retirement, you are not alone. According to the 2018 Retirees Confidence Study from the Employee Benefits Research Institute, only 32% of Americans said they were very confident that they could live comfortably throughout their retirement years.

Fortunately, it is up to you to take action now and in the future to make your retirement more comfortable. Here are five powerful retirement tips for 2018 and beyond.

Source of the image: Getty Images.

1. Get out of debt

Having a mortgage or car loan with reduced interest rate or a student loan is generally acceptable, but many people end up with long-term debts on their credit cards, for which interest rates from 15% to 25% are billed to them. and sometimes even 30%! If you end up with, say, $ 15,000 in debt, a 25% interest rate can cost you about $ 3,750 a year. This kind of burden can make it difficult to advance financially and it is particularly risky to take on a retirement debt when you try to make your nest egg last.

Make your debt a priority. Even if your only debt is a low interest mortgage, consider paying it off before you retire. Not having mortgage payments due each month while your income is limited can make your retirement less stressful.

2. Form a plan

Many people put money aside for retirement, but without a plan. They are essentially hoping for the best, without knowing if they are saving enough. Leaving everything to chance rarely works well. Determine how much money you will need in retirement and how you are going to amass it. Determine and plan your retirement income sources as well, such as social security, savings, pension income, and so on.

Tax-efficient IRAs can help you save money. In 2018, you can contribute up to $ 5,500 to one or more traditional IRAs or Roth – in total. If you are 50 or older, the limit is $ 6,500. With a traditional IRA, a $ 5,500 contribution will reduce your taxable income by $ 5,500 – allowing you to save $ 1,375 if you are in the 25% tax bracket. It can be invested and grow with tax deferral until it is taxed when you make withdrawals at retirement. With a Roth IRA, a contribution of $ 5,500 has no effect on your taxes during the year of contribution. But follow the Roth IRA rules, and you will be able to withdraw all your contributions and winnings without taxes! If your Roth IRA reaches $ 300,000 in 20 years, all of this can be duty free Income retired.

Also enjoy your 401 (k) or 403 (b) account. They have much higher contribution limits than ARIs – for 2018, the limit is $ 18,500, or $ 24,500 for those 50 and over. At a minimum, contribute enough to your 401 (k) to recover all available matching dollars from your employer. It is free money, after all. 50% of your contributions, up to 6% of your salary, correspond to your salary, which means that if you earn, say, $ 80,000 a year and you pay $ 4,800 (6% of your salary) ) at your 401k, your business throws $ 2,400 extra. Free money.

Source of the image: Getty Images.

3. Saving aggressively and investing effectively

Do not make unenthusiastic contributions to your retirement account (s) either – especially at the beginning of your career. Your first dollars invested have the most time to develop, after all. The more you can save, the better you will be in retirement – especially if you take many more years to retire. The table below shows how much you could raise if your nest egg grows on average 8% per year:

Calculations by author.

It's not enough to save a lot, though. If you save a lot but keep that money under your mattress or in a savings account with a 2% interest rate, it will be difficult to create wealth. The stock market is an excellent wealth factor for long-term money. Try to hold only shares in companies you have researched, followed and with great confidence. If you do not have the ability or interest to be an active investor, opt for one or more market index funds. the SPDR S & P 500 ETF (NYSEMKT: SPY), for example, will distribute your money among the 500 companies in the S & P 500, which account for about 80% of the US market. The table below shows the difference that the growth rate of your money can make with annual investments of $ 10,000:

Calculations by author.

4. Consider a wide range of sources of income

It is good to have a growing nest egg, but you must have a plan to know how all this money will provide you with the income you need to retire. Do you just want to sell pieces over time? Or will you book some or all of it in income-generating investments?

Consider creating your own reliable income stream by buying an immediate annuity (as opposed to the more problematic variable or indexed annuity). You might be surprised at how much income you can buy through an annuity – and the amounts you offer should increase when interest rates also increase. Here is the type of income that different people could get in the form of an immediate fixed annuity in the current economic context:

Source: immediateannuities.com.

Another effective way to generate retirement income is to buy healthy, growing dividend producing stocks. After all, they can continue to pay you without having to sell the shares themselves. Researchers Eugene Fama and Kenneth French, who looked at data from 1927 to 2014, found that dividends were higher than non-payers, with average annual growth of 10.4% versus 8.5%. If you pay $ 300,000 in dividends with an average total return of 4%, you expect an annual income of $ 12,000, or $ 1,000 per month. In addition, dividends tend to increase over time, while stock prices may also increase.

Source of the image: Getty Images.

5. Have an intelligent social security strategy

Finally, make sure you make smart decisions about social security. There are many ways to increase your social security benefits. For example, you can use the formula used by the Social Security Administration to calculate your benefits. It's based on your earnings in the 35 years you've won the most, so if you're only 29, the formula will have six zeros, which will dramatically reduce your benefits. Are you planning to retire after 32 years of work? It might be worth working another three years if you want to get more benefits. Even if you have worked 35 years, if you now earn much more than in the past (on an inflation-adjusted basis), you might consider working for a year or two because every one year of low income out of the calculation.

Also consider spousal strategies if you are married. For example, you may begin to perceive the spouse's benefits with the lower lifetime earnings record, on time or at the beginning, while delaying the start of the highest income spouse's benefit collection. That way, you both get an income earlier and, when the highest income reaches 70, they can start collecting additional checks. In addition, if this spouse with the highest number dies first, the spouse with the lowest earnings history can collect these larger benefit checks.

Also note that even divorced persons may receive benefits based on the background of their former spouses – if they have been married for at least 10 years and have not remarried. In addition, spouses can receive "spousal benefits" based on the other spouse's background and receive up to 50% of that spouse's benefits, whereas most widows and widowers can start to receive 100% of their spouse's benefits.

Your retirement can be difficult, comfortable or fabulous, depending on your state of readiness and the income you can get. Know that you do not have to plan your retirement alone. It may be worthwhile to spend a little money by consulting a financial advisor. Advisors designated as only paying will not seek commissions on selling your products, and you can search for one on napfa.org. Yes, you could pay several hundred dollars or more, but a good pro could save you a lot more than that.