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4 Ways to Get Your Retirement on Track 4 Ways to Get Your Retirement on Track
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4 Ways to Get Your Retirement on Track

Insights & Ideas Team •  February 22, 2016 | Your Finances

If you are in your 20s, 30s or 40s, you are likely working and saving for retirement. But are you doing the right things? Are you saving the right way? Are you on track to retire when you want to and in the way you want to?

“When you develop a road map to retirement and update it on a regular basis,” says Northwestern Mutual Wealth Management Advisor Curtis Parry, “you can be assured that you are doing the right things. It can give you a sense of peace.” The reality is, the more hands-on you are now, the more your money will have a chance to work for you along the way.

Where do you start? Here are four things you should do to help ensure your retirement saving is on track.

1. Determine what you really need. This question involves goal setting. There’s not a magic retirement number. That’s because the amount you will need depends on a myriad of things, the most important of which is what you want to do in retirement. You won’t know if you are on track if you don’t know where you’d like to end up some day. Where will you live? Will you travel frequently?

A good financial professional will take the time to hear what your plans and goals are and work with you to build and implement a financial plan to not only get you to retirement, but through it as well. Parry says, “We match up your dreams with where you are and help you figure out if you’re on track. If you’re not, we can show you ways to get there.”

2. Take advantage of matching contributions. Many employers match contributions to a 401(k) up to a certain level. Parry says determining whether your employer offers a match and what that match maximum contribution would be are some of the best first steps people can take as they look to do the most with their money while saving for retirement. He says he recommends his clients max out the match whenever possible: “It’s free money. Why not capture it?”

Still, Parry says he often has to convince clients it’s worth their time and effort to set up 401(k) contributions. “More people than you would imagine do leave that company match on the table. There are just so many unknowns for workers these days: the terms of the match, the transient nature of the working world and a lack of faith in the markets. But free money is still free money, so why shouldn’t you take advantage? We’re using it to build wealth and help you reach your goals.”

3. Think beyond your 401(k). A 401(k) is a great retirement tool, but it shouldn’t be the only one in your toolbox. Your money will do the most for you when it is diversified. That diversification should include a mix of solutions that will give you taxable and tax-free sources of income in retirement. For instance, 401(k) money is tax free now and will grow tax free. But you will pay taxes on that money when you take it out in retirement, thus reducing the amount you have to spend. Parry often also suggests setting up a Roth 401(k) or Roth IRA. “Where else do you have an opportunity to put after-tax contributions in now and then, in essence, disinherit the IRS on those gains going forward? To the degree that a client can take advantage of Roths, we very much ask them to do so.” You can get additional strategies about taxes in retirement by downloading Northwestern Mutual’s free guide Retirement Savings Options You Must Consider Beyond Your 401(k).

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Diversification also means utilizing a mix of assets, some that are safe and guaranteed and others that involve some risk with the potential of greater growth. Parry believes you should also consider how permanent life insurance can play a role in a diversified retirement plan. Permanent life insurance has a dual role of sorts. Primarily, the death benefit it provides can protect your family, including your spouse’s retirement plans, if something should happen to you. But during your life, most permanent policies also build cash value that grows tax free and, in the case of whole life insurance, will never decrease. That’s particularly helpful during down markets in retirement. Because cash value never decreases in whole life policies, you can use that money to avoid withdrawing from your investments during a market downturn in retirement.

Parry notes that when clients use a good and diverse mix of financial tools, they set themselves up with the greatest chance of success with their money in the long run.

4. Plan for the unexpected. Good retirement plans also include being intentional about what you or your family would do if something unexpected happens, like becoming disabled, a premature death, a job loss, etc. When you have a plan in place to address these issues “just in case,” you protect your ability to retire down the road.

Parry says these topics force a conversation about how to prepare for life in the event something unexpected were to happen. “Our talk will include things like having at least six months of expense money set aside as an emergency fund and getting insurance to provide income if they become disabled or die prematurely. We also talk about working with an estate planning attorney,” Parry said. The attorney can help to make sure basic legal planning is in place to include things like a will, a health care power of attorney and a living will.

During your working years life is typically moving along at a fast pace. To slow down and be intentional about retirement choices that seem a long way off can be daunting, but the choices you make and the actions you take now really can set you up for bigger financial wins down the road. The sooner you get started, the better. The longer your dollars have to grow and multiply, the more money you will have to enjoy once you do move on to life’s next chapter.

A financial professional can help you think through these steps and work with you to implement a plan to help you get to where you want to be. That proactive approach can mean more peace of mind that you’re doing what it takes to eventually retire, reassurance that you’re making the most of what you’re putting away for your golden years, and confidence that you’ll be able to live the life you want in retirement.

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