Planning For Financial Independence

MARTHA L. LINSNER, CTFA
President & Chief Operating Officer The Trust Company of Kansas

Like many areas in life, having a plan to meet a goal is critical. The same holds true when planning for retirement. There are many aspects to consider—age, health, location, hobbies, travel, inheritance, gifting, taxes, on and on. So, when and where do you begin? Well, the sooner the better in order to gain financial independence.

Planning for Retirement in Your 30s
The earlier the retirement planning starts, the better the chances of achieving financial independence. For the thirty-something, planning is typically not at the forefront of one’s mind. After all, it is 30 years away, and there are likely more immediate concerns, such as paying off student loans, starting a family or purchasing a first home.

Here are several ways to start thinking about the future now and steps to set retirement plans in motion.

Automate savings
Establishing a disciplined approach to save money for the future is key. Participation in a workplace retirement savings plan is the easiest way to contribute automatically. Focus more on the idea of starting to save sooner than later rather than stressing over how much is being set aside.

Strive for 10%
By setting aside 10% starting in your 30s, enough should be saved by the time you reach retirement age in your 60s to have a comfortable life.

Invest wisely
Choosing the right asset mix is critical. Deciding on the right mix and sticking to it until goals or circumstances change significantly is a major step toward investment success.

Do not time the market
Often, investors' biggest mistake is letting emotions rule buying and selling decisions. Don't panic and liquidate when the markets fall. It is best to choose a particular investment strategy based on your risk tolerance and stick with it.

Eliminate debt
Debt can get in the way of saving for retirement. The higher your debt levels and the longer it takes you to pay it off, the less money you will have to set aside for retirement.

Open a Roth IRA
If you are maxing out your workplace retirement plan and want to save more—or you don't have a plan through work—consider opening a Roth IRA.

Ask for a raise
Check out sites such as Payscale.com and Glassdoor.com to research salaries for particular jobs and learn the art of negotiating pay. Then funnel any raises or bonuses into a retirement account.

How much should you have saved for retirement by age 40?
By the time you are 30, you should have saved half of your annual salary. By age 40, you should have twice your annual salary saved for retirement.

What if you’re 50 and haven’t started saving?
If, when you reach your 50s, and an uneasy feeling comes over you because you have not saved enough for retirement; don’t panic. Though you can’t expect to match someone who started planning in their 30s, your cause is far from lost. Steps to take at this point include start saving and protecting the money you have, create additional income streams and cut spending.

Retiring at 65 and the decisions you’ll need to make
Age 65 is a common retirement age because that is when Medicare health coverage begins. Enrolling in Medicare isn't the only thing to do at 65. Other decisions include:

Purchase supplemental insurance
Medicare won't cover all health care expenses. On average, expect it to cover about 50-60% of the health care costs. To gain additional coverage many retirees purchase supplemental insurance.

Decide when to start Social Security—now or later
You need to carefully weigh out the pros and cons of starting Social Security at 65. There is no one “best age” for everyone to start collecting Social Security. Ultimately, it is your choice.

Consolidate IRAs/other retirement accounts
If you have money in a retirement plan at work, you’ll need to determine if you should roll this money over to an IRA. It may be much easier to manage your retirement savings if you consolidate all your retirement accounts into one IRA.

Taking retirement account withdrawals now or later
The IRS requires you to take distributions from IRAs and other qualified retirement plans starting at age 701⁄2. However, you can withdraw funds before this age, and sometimes for tax reasons, it makes sense to do so.

Whatever your age, consider a wealth management service advisor
When it comes to planning for retirement, a financial planner can help development a comprehensive plan to assist with reaching goals and accountability to those goals. Finding a wealth management provider who can do a good job managing your assets, but also one who has access to a comprehensive financial planning software that offers clients both, goals-based and cash-flow-based, analyses and projections may be the best solution to achieve financial independence.