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My retirement is a long time away. Everybody says I should save now, but what’s the big deal if I put it off just a few years?

The answer is easy – compounding. If your money generates earnings, they can then be reinvested to generate their own earnings, and so on. When you’re young, compounding can be one of the easiest ways to build wealth over time. The earlier you start, the greater your chances of achieving your financial goals for retirement. 

The Power of Compounding

How $1,000 can compound at various annual rates of return over time

Years

4%

6%

8%

10%

10

$1,481

$1,791

$2,159

$2,594

20

$2,191

$3,207

$4,661

$6,728

30

$3,243

$5,743

$10,063

$17,449

This chart is for illustrative purposes only and is not intended to represent any particular fund or investment, nor does it address tax implications or investment expenses. Assumes reinvestment of earnings. COUNTRY Financial® does not imply any guarantee of investment performance or benefits. The growth of your assets will be based on actual rates of return earned by the investments you choose. Past performance is not indicative of future results.

I’m on a tight budget. How can I save money for retirement now with so many other obligations?

Here are a few tips:

Pay yourself first – This isn’t rocket science, it’s simply a way of adjusting how you look at saving for retirement. If you’re like most people, you pay your bills, reward yourself with some spending money, and promise to tuck a little away for retirement if anything’s left over. With the “pay yourself” principle, you set aside a specific amount from each paycheck for your retirement first, pay your bills next, and then reward yourself with what’s left. That’s an easy way to cut back on small indulgences.

It’s okay to 401(k) – If your employer offers a 401(k), sign up! Since the money is automatically deducted from your paycheck, you won’t be tempted to spend it. It’s “pay yourself first” in action! The added bonus is – that money is tax-deferred, and the power of compounding discussed in the question above comes into play there. And, if your employer offers a matching contribution, you get a second bonus because you’re getting free money. Don’t leave that money on the table. Contribute enough to get a full match.

Up the ante – When you get a raise, try to increase your 401(k) contribution by at least a percent. If you don’t ever see it, you won’t miss it.

Don’t stop thinkin’ about tomorrow – When you max out your 401(k) contribution, think about opening an IRA. You don’t have to contribute the maximum or even contribute every year, but doing so might result in some very nice tax benefits while helping you prepare for your financial future.

I don’t understand investing very well, and I find it a little intimidating. What should I do?

Investing is, without question, confusing for a lot of us. But you might be making it harder than it needs to be. You don’t have to understand alphas, betas, standard deviation, or derivatives to invest for your retirement. In general, you want to understand some basic investment principles – things like compounding, asset allocation1, diversification1, and risk versus return. Talk with your COUNTRY Financial representative to discuss these basic investment principles.

How much money will I need to pay living expenses during retirement?

Like many things in life, the answer is – it depends. The kind of life you want during retirement will influence how much money you’ll need. If you want to travel a lot, you’ll need more than someone who’d rather stick close to home and putter in the garden. Either way, you should plan on at least 75 percent of your pre-retirement income to pay for living expenses during retirement.

How long should I plan on needing retirement income?

Healthcare keeps improving, so it’s not uncommon for people to spend more years in retirement than previous generations. You can't accurately predict how long you'll live. But for planning purposes, a good rule of thumb is to assume you'll live to about age 90 unless your health or family history indicate otherwise. You might not live that long, or you might live longer.

I hear a lot about asset allocation. How should I divide my money earmarked for retirement?

Asset allocation1 – or how you divide your money among asset classes like stocks, bonds, and cash – is commonly considered the most important part of investing. How you divide that money depends on a number of factors, like how long before you need the money and how much risk you’re willing to take for potential return. Generally speaking, the longer you have until you need the money, the more risk you can afford to take.

Our Risk Tolerance Quiz is a good way to get an idea about how you may want to allocate your retirement dollars.

Should I consolidate my retirement accounts?

Here’s another “it depends” question. With most former employer retirement plan money, you have four choices about what to do with it – take the money, leave it where it is (if possible), roll it into another 401(k) (if possible), or roll it into an IRA.

By consolidating your retirement money into one account, you might:

  • Have better control of your overall asset allocation
  • Make your life easier with one statement
  • Have more investment choices
  • Save yourself money

The answer for you, though, is as unique as you are. And it's important to weigh any tax penalties or other consequences of consolidation. Your decision should only be made after talking to a trusted financial professional.

How much money should I have tucked away for an emergency?

Life is full of surprises, and some of them can be costly. Because you know that unexpected expenses will pop up, having a fund established to pay for it will help you avoid the temptation to tap into your retirement account.

Generally speaking, you should have about 3-6 months worth of expenses in an easily accessible account – like a savings or money market account.

Need to build your emergency fund? Try the dollar-a-day dare. Just throw a dollar into a jar every day. Or better yet – throw all your singles into the jar at the end of the day, and watch that emergency fund grow! Then, periodically deposit that money into your emergency fund savings account.

I’m heading into retirement. How much can I withdraw from my retirement account and not run out of money?

A lot of factors go into your withdrawal rate – like your stock and bond allocations and life expectancy. But don’t make this decision lightly. Your best bet is to talk to a financial professional before you retire. That way, you’ll have a more reliable answer, and that peace of mind can make retirement less stressful.

I’ll have several sources of retirement income. Where should I withdraw the money from first?

Some of your retirement accounts may have minimum distribution requirements – usually starting at age 70 ½ – and that can influence where you withdraw the money from first. But there are other factors too, like investment performance and tax implications. Here’s a common liquidation order:

  • Taxable accounts
  • Tax-exempt / municipal accounts
  • Roth IRAs
  • Tax-deferred accounts

While this is a common order to take the money, talk to your tax advisor before you make your final decision because your specific situation will dictate what you should do.

I have a pension plan at work. What distribution option should I choose?

Congratulations!  Pension plans – with a guaranteed retirement income stream – are a wonderful benefit.

A commonly used option for a married couple is Qualified Joint and Survivor. This might be a good option if your spouse has a pension or other sources of cash or if there’s a significant difference in your ages or health.

For a single person with heirs, Life with 10 Years Certain is the common method of receiving pension benefits. If you don’t have heirs, you might want to look at other options.2

When should I start taking Social Security?

If you need your Social Security benefits to meet your retirement income goal, you might want to start benefits as soon as you’re eligible, even if it’s before you qualify for full retirement.

If you have enough income without your Social Security benefits and expect to live beyond average life expectancy, you may want to delay starting your Social Security benefits until you reach your full retirement age.2

Will Medicare cover my healthcare needs when I retire?

That’s an unfortunate misconception a lot of people have, and it can be a costly one. That being the case, consider continuing your group coverage from work if you have it. Even though the cost will probably be higher than during your working years, it could be well worth it in the long run. Learn more about planning for potential health issues in the future.

NOT FDIC-INSURED

May lose value

No bank guarantee

Investment management, retirement, trust and planning services provided by COUNTRY Trust Bank®. Please see our Terms & Conditions for more information about COUNTRY Trust Bank and its affiliates.

 

Registered broker/dealer offering securities products: COUNTRY® Capital Management Company, 1705 N Towanda Ave, PO Box 2222, Bloomington, IL 61702-2222, 1-866-551-0060. Member FINRA/SIPC

COUNTRY Financial and our representatives cannot give tax advice. Any information we provide reflects our understanding of current tax laws, which are subject to change and reinterpretation.

1Diversification and asset allocation do not assure a profit or protect against loss in a declining market.

2Consult your tax or legal advisor regarding your specific situation.