When you have time and money, you can celebrate independence
every day.
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 For many people, the most important difference
retirement makes is that they have a sense of control over how they spend their
time. If they can feel equally confident that they have control over their finances,
the stage is set for a rewarding retirement. But while taking control of your life
may not require prior planning, taking control of your finances does.
FREEDOM FROM WORK If you add up
the hours you spend on the job, typically 80,000 over 40 years, or almost 25% of
your time, there's little question that retirement can be liberating.
You probably won't have much trouble filling up the time, either with the things
you've been postponing or with new interests. In early retirement in particular,
you may find you're putting more mileage on the car, spending more time with family
and friends, and just generally enjoying yourself.
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FREEDOM FROM WANT But if you don't
have the income to cover your regular expenses, and enough extra to afford what
you enjoy, your new leisure may just mean more time on your hands — or going
back to work.
Though only a small percentage of retired people are truly needy — about 10%
of that population, most of them elderly women — many retired people find themselves
short of income, or worry that they're going to run out of money. In most cases,
that's because they don't have enough sources of retirement income.
There are some things you can do to help avoid finding yourself
short of cash. You may want to consider some or all of the following. But remember,
there are no guarantees with investing. You may make money, but you could lose money,
too, especially in the short term.
- Invest to the limit in employer-sponsored retirement plans
such as SIMPLEs,
401(k)s, 403(b)s, TSAs,
or various government plans if you qualify to participate
- Set up your own retirement plan if you work for yourself
or have a small company
- Put as much as you can into IRAs
- Consider other
tax-deferred plans such as
annuities
- Reinvest any earnings from taxable investments
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A typical goal is to invest 10% to 15% of your gross earnings — that's earnings
before taxes are taken out — every year. A percentage of your
principal should probably be invested for growth, with
the potential to be worth more in the future than it is today.
Stock, the
mutual funds and
variable annuity
separate accounts that invest in stock, and
real estate are potential growth investments.
At the same time, you may want to invest another percentage of your portfolio in
bonds and
other fixed-income
investments, including
fixed annuities, and the rest in cash or cash equivalents,
to diversify your holdings. Diversification helps balance the various investment
risks, including periodic downturns in the market, that you must be prepared for.
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FREEDOM FROM WORRY Thinking about
retirement often makes people nervous, even those who feel they've done a good job
of putting away money for the long term. One of the reasons is having to make decisions
about drawing income from different sources.
The factors that may influence what you do include how old you are,
the traditional sources of income you can count on, how risk-tolerant you are, and
your family health histories.
What's even worse, it may be hard to get concrete advice. For example, you may be
asked to choose among a half dozen or more payment options for your pension, each
producing a slightly different monthly amount. Anyone you ask will have an opinion
about which decision makes the most sense, but there's rarely a right-or-wrong answer.
Do you take the largest amount you can? Do you spread it over your spouse's lifetime?
Do you take a little less, with the guarantee your beneficiaries will get a
lump sum amount if you die within a few years? You'll probably
want to get expert advice to help you sort through the possibilities.
Drawing income from other resources, like IRAs, mutual funds, and
annuities, will require decisions, too. Sometimes you can change your mind about
how you take income, but often your initial decision is irrevocable, or fixed for
your lifetime.
The only real solution — other than trusting your financial
fate to the equivalent of a game of darts — is learning as much as you can
about how the different investments can help meet your retirement goals.
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Glossary
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Interactive Demos
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Our Products
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 Try our
interactive demo to find out how contributing to a 401(k) can benefit you.
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