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Retirement Made Simple

Retirement Made Simple retirement With today’s troubled times and people looking to beat the ever rising costs of living, many don’t have the thought of retirement on their mind.  Between a rent or mortgage, rising monthly bills, and everyday costs, it makes it hard for most to save and plan for the future.  People view the thought of retirement as intimidating and are always worried that they might not be able to save for their futures.

The thing that scares many people when it comes to retiring is that they do not plan accordingly.  By that most assume that they need a savings account and they should put most of what they want to save into it.  Having a plan and being aware of what you need to do to achieve your goals is a huge first step.  Some things that are necessary to figure out first are: What age do I want to retire, how much money do I need to comfortably retire, and also what will be reliable sources of income for me?

What age do I want to retire?

This is an important question for all retirement plans.  The age a person wants to retire is completely up to them.   What needs to be considered is how much money you will have and by what age will I have it.  If you feel that you can maintain the life you want with whatever money you have, then why not retire whenever you want.

How much money is needed to retire comfortably?

Once again, this is for the individual to decide as there is no set amount of money that is needed to be saved before you can retire.  Assuming most people will start to save for retirement around the age of 25, and 65 is a good age to consider retirement, so you would have been saving for 40 years or so.  A good amount to have saved into a 401k would be roughly $750,000.  That amount is solely an idea of what might be needed to retire in comfort.  Based on the person, this number could be less or more depending on lifestyle and needs.  One major thing that people looking to retire need to factor is medical bills and expenses.  As you get older you will have medical bills and they can sometimes be quite costly.  People need to set aside a nice amount to be able to pay for things such as this as well as “end of life” expenses.

What are reliable sources of income?

Unless you plan on retiring with a pension, you will need to figure out where your income will be coming from.  For most retirees, their 401k or other types of savings plans will be their main sources of income.  Many who retire will keep part-time jobs as a source of income.  Others will rent out their homes after moving elsewhere.  The money they make doing this will not pay all the bills, but it will help out immensely.

When it comes to savings and figuring out what works best for you and your goals, you need to figure out which method you would like to go with, as there are different options to consider.  The options for saving all have their pros and cons, so you would have to decide what would be the best route for you to take.

401k- This is the savings plan that most companies have for their employees that allows them to save for retirement.  The money put into this type of account would be withdrawn from the employee’s paycheck before taxes.  The good thing about a 401k is that the employer will contribute half or even an equal amount to what you put into it. There are some restrictions however, such as if you would like to take money out before the age of 59 and 1/2, then you will be taxed on ALL of the money by the IRS, and pay a 10% early withdraw fee.

Traditional IRA- This IRA is an account that is exempt from deductions at the point of deposit.  The downside of this however is that when withdrawn, you will have to pay a federal income tax on the IRA.  These types of IRAs will allow you to build interest on your deposits and will receive tax benefits.

Roth Ira- A Roth Ira is similar to the Traditional IRA except that you cannot receive a tax break.  Unlike Traditional IRAs, a Roth allows for a tax break at the time of withdrawal and you are not required to make at least one monthly withdrawal, unlike other accounts like the 401k.

Many people when they hit retirement age look to relocate for parts of the year or possibly for good.  When looking into a new home and renting out an existing one for income, there are various aspects that need to be addressed.  Before renting out your home, you’d need to be in a new place.  When looking for a new home, the housing market plays a key role in this due to mortgage rates in whatever area the new home would be as well as taxes.  These need to be taken into consideration before the move is made as well as the funds that could be used towards the home that is being rented.

Renting out a home is a great source of income for retired people.  Say they were to purchase a new home and decided to rent out their old one, (assuming it is paid off) then they could have the renters be paying for the new mortgage.  Or, those retired could be living in a condo or apartment and have a rent to pay, so the added income from the rented home along with a part time job and possibly a pension could make for a great life because there is not as much to worry about.  When deciding to rent out a home, retired people must realize that they are still in charge of home repairs if something were to happen.  This means that any problems that arise will have to be taken care of.  The retiree need to know that this is a large part of renting out a home and needs to have the funds to cover any sort of issue.

Planning for retirement can be intimidating, but with the proper planning and decision making, you can have a great life when the time comes that you would like to stop working.  Knowing little things such as the age you plan on retiring at, how much money you think you’ll need to have saved, and how you will be getting your income are all important aspects of a successful retirement plan.  There are numerous ways to go about saving for retirement, decide which is right for you.

Author Bio: Mark Scheets is a writer for Total Mortgage Services .  Be sure to check out our new website and like us on Facebook.

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18 comments

  1. I think renting a property is a good choice for retired people, but if I was doing that I would also prefer to have someone else manage it day-to-day. I’m not sure at 70 I will be too amused having to address some issue the renter has. There seems to be a lot of low-cost rental management companies, though, so that could be a good option as well.
    DC @ Young Adult Money recently posted..3 Ways You Pay a Premium for Human InteractionMy Profile

  2. We are still undecided if we want to rent out our current house. It would make for a great income into the future though!
    Michelle recently posted..Staying Productive While FreelancingMy Profile

    • We decided against it because of the clientele that would want to live here. We don’t live in the best neighborhood and I don’t want to deal with the type of renters that come to this neighborhood.

  3. We are planning on using our savings, investments, and rental properties to fund our retirement. I would like to get more rentals as well but it probably won’t happen until our kids grow up.
    Holly@ClubThrifty recently posted..Freelancing is Making Me FatMy Profile

  4. We’re planning on diversifying our income streams as much as possible as we lead up to retirement and cutting expenses as much as possible. We also plan on diversifying from a tax perspective as well to set ourselves up as good as possible.
    John S @ Frugal Rules recently posted..Taking the Plunge: Running Your Own Small Business From a Virtual OfficeMy Profile

  5. John’s point about tax-diversification is a great one. A mix of Roth and Traditional accounts will give you options when it comes time to withdraw. I think rental properties could be a great source of income, but I don’t think it’s a good idea to assume you’ll want to start doing that right when you retire. Probably a better idea to have started much earlier so you have the experience to know how it works and understand if it’s truly something you can count on.
    Matt Becker recently posted..The Simple, Effective Approach to Investing (Part 4): Implementing Your Investment PlanMy Profile

    • I haven’t thought of tax diversification, but rental property is a possibility. I would do it well before retirement, so I had a process in place.

  6. I think planning is the biggest issue most people have. Not many people plan even a year ahead let alone 40 years. Saving for retirement is relatively easy if you start young and have a set plan.
    Jake Erickson recently posted..How to Graduate College With No DebtMy Profile

    • I think most people don’t realize how much money they will need to retire. They see a few thousand in their accounts and think they will be good. It is simple to save, you just have to do it.

  7. My mum and dad did that with their own home and investment homes they bought. They ended up buying in seniors villa and rent out all of their homes now. They use the money from the rent for their retirement and don’t even need to touch their pensions and other investments.
    Canadian Budget Binder recently posted..Buy or Sell First: One Home, One House, Two Mortgages And A PoolMy Profile

  8. People are living longer, people want to retire earlier, and people are saving less. It’s not a good combination :/

    Although I’m setting aside a lot of money, I don’t see myself ever “retiring.” When people stop being active (how most people picture retirement), they age quickly.
    funancials recently posted..Warning: Not All 0% Interest Rates Are The SameMy Profile

  9. This is a good article that showed me I need to think about this a little more critically. I just opened up my first retirement account in January, so obviously I have a long way to go. I imagine we’ll have a mix of income streams to fund retirement, but we’ll definitely have to chat more about how we’re going to balance funding those income streams now with hubby’s ridiculous student loan balance that we’ll have to pay back.
    Cat Alford (@BudgetBlonde) recently posted..How To Make Money From Hosting an EventMy Profile

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