Finances in Focus

If you’re a baby boomer, you’re at the point in life where, if you haven’t actually entered retirement, you’re at least approaching the outskirts. Yes that “dreaded” 65 is here or at least near. But if you’re like many of your fellow boomers, you may be experiencing more than a little trepidation over your financial prospects as a retiree. That’s why it’s so important for you to determine what steps to take to help improve your chances of enjoying a comfortable retirement.

Just how worried are baby boomers about their future? Consider these numbers: Seventy-two percent of non-retired boomers think they will probably be forced to delay retirement, and 50% have little confidence that they will ever be able to retire, according to a recent AARP survey. Other surveys show a similarly bleak outlook among the baby boom generation.

Fortunately, when it comes to building resources for retirement, you have options. Of course, if you’re in one of the younger age cohorts of the baby boom generation, your possibilities are greater — you may still have time to take measures such as boosting your 401 (k) and IRA contributions, reducing your debts and positioning your portfo­lio to provide you with a reasonable amount of growth potential.

But even if you are pretty close to retirement, or at least close to the point where you initially expected to retire, you can act to better your outcome. For one thing, you could re-evaluate your planned date of retirement. If you really don’t mind your job and could extend your working life for even a couple of years, you could help your­self enormously in at least three ways:

—You’ll add on to your retirement accounts. The longer you work, the more you can contribute to your IRA and your 401(k) or other employers-sponsored account.

—You may be able to delay taking Social Security. You can start taking Social Secu­rity as early as age 62, but your benefits will be permanently reduced unless you wait until your Full Retirement Age (FRA), which will likely be 66 or 67. Your payments can increase if you delay taking your benefits beyond your Full Retirement Age, up to age 70.

—You may be able to delay tapping into your retirement vehicles. The longer you wait until you begin withdrawals from your IRA and 401(k), the more time you are giving these accounts to potentially grow. (Once you turn 70 Vi, you will need to gen­erally start taking withdrawals from a traditional IRA and a 401(k) or similar plan, but you don’t face this requirement with a Roth 401 (k) account.)

As an alternative to delaying your retirement — or possibly as an additional step you can take along with a delay — you may be able to adjust your investment mix to provide you with the combination of growth and income that can help many  you through your retirement years. You can also be strategic about which investments you start taking withdrawals from, possibly allowing your portfolio to grow more than you had envisioned.

Start thinking now about ways you can help yourself achieve the retirement lifestyle you’ve pictured. You may want to consult with a professional financial advisor who can suggest the strategies and techniques most appropriate for your situation. In any case, with some careful planning, you can be a boomer whose retirement plans don’t go bust. Instead you can be enjoying life in P-Town, Palm Springs or Key West and enjoying the fruits of your labors.

Along the same line, one of the toughest issues many retirees (or wannabees) face is debt. A lot of folks carry debt, but what happens if you actually find yourself with extra money some month?

It probably doesn’t happen as much as you’d like, but from time to time, you have some extra disposable income. When this happens, how should you use the funds? Assuming you have adequate emergency savings — typically, three to six months’ worth of living expenses — should you pay off debts or fund your IRA or another investment account?

There’s no one “correct” answer — and the priority of these options may change, depending on your financial goals. However, your first step may be to consider what type of debt you’re thinking of paying down with your extra money.

For example, if you have a consumer loan or credit card that charges a high rate of interest — and you can’t deduct the interest payments from your taxes — you might conclude that it’s a good idea to get rid of this loan as quickly as possible.

Still, if the loan is relatively small, and the payments aren’t really impinging on your monthly cash flow that much, you might want to consider putting any extra money you have into an investment that has the potential to offer longer-term benefits.

For instance, you might decide to fully fund your IRA for the year before tackling minor debts. (In 2014, you can contribute up to $5,500 to a traditional or Roth IRA, or $6,500 if you’re 50 or older.)

When it comes to making extra mortgage payments, however, the picture is more complicated.

In the first place, mortgage interest is typically tax deductible, which makes your loan less “expensive.” Even beyond the issue of deductibility, you may instinctively feel that it’s best to whittle away your mortgage and build as much equity as possible in your home. But is that always a smart move?

Increasing your home equity is a goal of many homeowners — after all, the more equity you have in your home, the more cash you’ll get when you sell it. Yet, if your home’s value rises — which, admittedly, doesn’t always happen — you will still, in effect, be building equity without having to divert funds that could be placed else­where, such as in an investment.

In this situation, it’s important to weigh your options.

Do you want to lower your mortgage debts and possibly save on cumulative interest expenses?

Or would you be better served to invest that money for potential growth or interest payments?

Here’s an additional consideration: If you tied up most of your money in home equity, you may well lose some flexibility and liquidity. If you were to fall ill or lose your job, could you get money out of your home if your emergency savings fund fell short?

Possibly, in the form of a home equity line of credit or a second mortgage, but if you were not bringing in any income, a bank might not even approve such a loan — no matter how much equity you have in your house. You may more easily be able to sell stocks, bonds or other investment vehicles to gain access to needed cash.

Getting some extra money once in a while is a nice problem to have. Still, you won’t want to waste the opportunity — so, when choosing to pay down debts or put the money into investments, think carefully.

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