Take charge of your own retirement

It’s more important than ever to have your own retirement income plan. Once you stop working, how will you continue to pay for your lifestyle and enjoy the retirement you’ve envisioned? Fortunately, there are lots of things you can do today to prepare.

#1. Start saving early.

“Getting an early start can make a big difference,” notes Robin Dziuba, Senior Vice President, Senior Relationship Manager, Merrill Lynch Wealth Management.

For example, thanks to the power of compounding, someone who started saving and investing $500 a month at age 25 would have $588,000 at age 55, assuming a 7% long-term return, while someone who began saving and investing the same amount 10 years later would only have about half as much, or $255,000.³

#2. Maximize your pre-tax savings.

If you’re eligible for a 401(k), Dzuiba recommends contributing the maximum amount allowed. To help determine how much, review the current annual 401(k) contribution limits. At least contribute the amount needed to get your full employer match, if your employer offers one. Once you’ve maxed out your 401(k), “you may want to consider contributing to a Roth IRA, if you’re eligible,” says Jeremy Kaneer, Director, Investment Solutions Group for Merrill. “You pay taxes on those contributions up front, which means no taxes on withdrawals of those contributions in retirement.”

#3. Use a high-deductible health plan.

If your employer offers a high-deductible health plan, consider selecting it so that you can contribute to a health savings account (HSA). “Contributions come out of your paycheck pre-tax, grow tax-free, and come out tax-free too, as long as you use the money for qualified medical expenses,” Kaneer says.

#4. Don’t just use fixed income.

Though fixed income has a place in providing retirement income, investing a greater portion of your savings in equities and dividend-paying stocks might help to increase your nest egg’s growth potential, Dziuba suggests. You might also consider adding exposure to real estate — either by investing in REITs or owning an income-producing property.

#5. Consider an annuity.

“An annuity can provide an additional guaranteed income stream to supplement what you get from Social Security, and it could make it easier for you to manage ongoing day-to-day expenses in retirement,” Kaneer adds. There are various types of annuities, all of which present differences in what they can offer as well as their risks. It’s important to establish an appropriate investment allocation for your goals, age, liquidity needs and risk tolerance.

There’s a lot to consider when it comes to planning for the time when you no longer receive a paycheck. An advisor can help.

How much income do you need once you retire? What expenses do you expect? What other expenses should you plan for just in case? How much will Social Security cover if benefits get reduced? How can you make up the difference? Which investing strategies should you use?

Your advisor can help you answer these questions and any others you may have as you prepare for the future of Social Security.