Things you must know today about retirement planning tomorrow

An elderly African-American woman at a St. Patrick's Day parade. She's clad in green beads and related holiday bling.

Don't wait to plan for retirement. (Photo Credit: CC BY/Derek Bridges/Wikipedia)

Retirement isn’t what it used to be. No more company pension plan, retiree health benefits and a gold watch; do-it-yourself 401(k)s, IRAs and supplemental Medicare plans are here. Here are some things you should know about “new retirement” planning.

‘A changing landscape’

According to AARP senior strategic policy adviser Sara Rix, the total definition of today’s form of “new retirement” has been shaped for decades. People are working longer and the dollar doesn’t stretch as far as it used to. While less than 20 percent of 65- to 69-year-olds were working in 1985, today, nearly 33 percent are.

Save or sink

The key to a financially sound retirement is mustering the discipline to actually save. All the compound interest in the world – set aside investment losses and inflation – won’t help if you don’t set money aside.

“People have to be much more proactive,” said research economist Tony Webb of the Center for Retirement Research at Boston College.

According to a 2007 Federal Reserve study, half of Americans ages 55 to 64 have a retirement account balance of less than $100,000. Drawing 4 percent per year, that’s about $4,000 annually based upon typical drawdown rates. That’s only $333 per month.

Get an early start

Saving money and allowing compound interest to occur over 50 years is better than 20, unless you simply can’t wait. Then there are young workers who can’t see the point. A Stanford University study notes that when young workers were shown digitally aged photos of themselves, however, they were suddenly much more willing to set retirement money aside.

It doesn’t take rocket science to make retirement savings happen. Contribute to retirement accounts regularly, even as a direct deduction from your paycheck. Slow and steady growth with some diversification is desirable in a retirement portfolio. Advice from neutral financial advisers you trust is also very helpful. Above all, get going or it will never happen.

Accessible funds

Modern retirement account options give workers flexibility that their predecessors didn’t have. With a Roth IRA, for instance, it is possible to withdraw any money you contribute at any time without tax or penalty, unlike a traditional IRA, noted CPA Ed Slott, author of “The Retirement Savings Time Bomb … and How to Defuse It.” Earnings on a Roth IRA aren’t taxed during retirement, either. The trade-off is that you also won’t receive a tax deduction when you make a contribution.

Giving IRA money

There are many situations in which a worker (or non-worker) can contribute to an IRA. If you earn above a set income level, however, and a full tax deduction may not apply, noted Slott. According to IRS Publication 590, most wage-earners will not hit this ceiling. So you can bank up to $5,000 annually per person in a traditional IRA while under age 50. From age 50 and beyond, the annual limit is $6,000.

Save your nickels for the doctor

Medical costs must be factored into your retirement planning. Medicare simply will not cover everything. After age 65, the average couple will spend about $260,000 out of pocket on health care, including premiums and nursing care, according to a 2012 study by the Center for Retirement Research at Boston College.

“The problem is most households don’t have $260,000 in the first place,” said Webb. “What it means is that in practical terms, a lot of households face the risk of impoverishment or ending up on Medicaid.”

Work longer, draw more from Social Security

If workers are able to delay taking from Social Security from age 62 to age 70, they can increase their benefit amount by as much as 76 percent, notes Webb.

Retirement isn’t just about money

Considering how difficult the financial landscape has been, it makes perfect sense to be prepared to work again. As such, it’s advisable to keep your workplace skills sharp. If returning to the office doesn’t suit you, consider the entrepreneurial path. Just be prepared to work extremely hard to get your endeavor off the ground.

It also doesn’t hurt to be a little entrepreneurial, says Martin Yate, author of “Knock ‘Em Dead: Secrets and Strategies for Success in an Uncertain World.”

“If you find something that gives you joy, stick with it,” said Marin Yate, author of “Knock ‘Em Dead: Secrets and Strategies for Success in an Uncertain World.” “Have a little business on the side or be prepared to launch one.”