Early retirement
may not be the easiest goal to achieve, but it is possible. These steps
can help lead you in the right direction.
Step 1: Schedule a financial check-up.
Find a financial adviser you’re comfortable working with (ask friends
for referrals or contact your credit union) and set up an appointment.
Gather your paperwork, including account statements, tax returns, and a
list of retirement goals.
Step 2: Make your dollars work harder.
Make a list of your assets--everything from savings bonds to your 401(k)
plan--and calculate how much of your total portfolio is invested in
cash, stocks, and bonds. Adjust your allocation to maintain the right
proportion of each for your age, risk tolerance, and goals. A financial
professional can advise you on the most tax-efficient way to reallocate.
Step 3: Make the most of your employee benefits.
Find out exactly what retirement benefits your employer offers and
figure out where they fit into your early retirement plan. If the
company offers a tax-deferred savings plan, sign up. Contribute at least
enough to get the maximum matching dollars.
Step 4: Own your home.
If you haven’t bought a home yet, start saving up for the down payment
and contact UCU to learn how to make homeownership a reality. If you do
own a home, be careful about tapping into the equity before retirement.
Step 5: Plan for semiretirement.
Start preparing for a retirement “career.” It can be an extension of
what you’ve done during your working life, like substitute teaching or
consulting, or it can be something entirely different. Find out what
will be required for your new vocation and start developing your skills.
What’s the worst
financial move you can make with your retirement plan? Next to not
signing up, the biggest blunder is cashing out. Data from a survey of
200,000 individuals participating in 401(k) plans indicate that the
cash-out scenario is cause for concern.
The survey, conducted by Hewitt Associates, revealed that 45% of workers
participating in 401(k) plans chose to cash out their retirement savings
when leaving the job.
There are stiff consequences for pulling out. If you don’t think of your
retirement plan as a long-term savings strategy, you’ll lose years worth
of compound interest that you can’t get back.
Then there’s the tax bite. Individuals who cash out before age 59 ½ are
forced to pay regular taxes on the balance plus a 10% penalty. Combined,
the income taxes and penalties typically equal a quarter to nearly half
of that early withdrawal.
Who was most likely to raid their savings plans? According to the study,
about two-thirds of respondents were young employees age 20 to 29, and
three-quarters had account balances of less than $10,000.
That’s a big problem. If younger workers would leave the money in their
401(k) earning tax-deferred returns for several more decades, they’d be
much farther ahead. That $10,000 that they cash out at age 25 may net
$200,000 or more for retirement, assuming an 8% average annual return
and retirement at age 65.
Don’t make the mistake of blowing your retirement on vacations or a new
car today; both will be long gone or forgotten by the time you’re 65. If
you’re changing jobs, call us at 617-739-7447 to discuss options, such
as a penalty-free direct rollover to an IRA (individual retirement
account). A credit union representative can help you figure out the best
long-term strategy for your retirement savings.
Your savings federally insured to at least $250,000 and backed by the full faith and credit of the United State Government. National Credit Union Administration, a U.S. Government Agency.
Branch:
846 Commonwealth Avenue - Boston, MA 02215
