Five ways to take charge of your retirement

billsandchangeIncreasingly, workers are left to their own devices when it comes to retirement. With the demise of corporate pensions for all but a lucky few, the vast majority of workers are left on their own in planning for retirement. Even if you have a pension, you don’t necessarily want to count on it, or Social Security, being there or being enough to meet your living costs. It’s best to keep your retirement in your own hands. Here are five ways to do that.

Maximize your savings. Start saving and investing early to put the power of compound interest working for you. The earlier you start, the less you need to save and the more wealth you build up. Starting late won’t necessarily derail your retirement plans, but it does mean you’ll have to take measures to make up for the lost time, by saving more or working a little longer.

Maximize employer matching in your tax-exempt or tax-deferred retirement contributions. If your employer offers matching contributions in your 401(k), take full advantage. About half of employees don’t participate in their workplace retirement plan, and only 10% contribute the amount for full employer matching. That’s like turning down free money.

Live below your means. In order to help ensure a comfortable retirement in the future, you need to spend less than you make now, and invest the difference. Create a budget that enables you to save for retirement and other long-range goals. This might mean reducing or eliminating nonessential expenses. A latte each morning probably won’t hurt, but you might have to reconsider or postpone the new TV, luxury vehicle, or boat.

Keeping your expenses low allows you to save more. It also sets you up for an efficient lifestyle in which you make your dollars go farther. This will help you when you actually retire – the lower your retirement expenses are, the less income you will need.

Emphasize tax-exempt accounts. Investing through Roth 401(k)s and Roth IRAs lowers your taxes so you keep more of your money. Because you don’t pay taxes on your investment returns, your money compounds more quickly. If you can’t invest in tax-exempt accounts for some reason, tax-deferred accounts like traditional IRAs and 401(k)s are an acceptable alternative. Just remember that your distributions will be taxable when you take them out in the future, and that future tax rates might be higher than today.

Don’t forget future expenses. Although inflation has been low for the past few years, historically it has been higher. At 3% inflation per year, after 30 years a $500,000 nest egg would be worth $205,993.

Also consider that your healthcare expenses are likely to increase as you get older. In 2015, for a healthy, 65-year-old couple, their expected lifetime retirement health-care premium costs will be $266,589, which include Medicare parts B and D coverage as well as supplemental insurance, according to an analysis by HealthView Services.

Adding in dental, vision, co-pays, and other out-of-pocket costs, the cost estimate rises to $394,954. These costs are projected to rise. For a healthy 55-year-old couple, total retiree health-care costs are projected to be $463,849. “Most people don’t plan for the cost of routine medical costs in retirement,” said Katy Votava, president of, a firm that advises clients about paying for healthcare. She recommends people make use of Roth IRAs and health savings accounts to handle healthcare bills.

The future of Social Security and many pensions looks uncertain. Although they will probably still be there, the amount of payments may be reduced. In any case, you’re wise to take the reins of your retirement planning and not depend solely on circumstances that are outside of your control.

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