You can do too little when planning for retirement.
Yet most of the advice is focused on one thing: Accumulating as much money as possible.
While that's not a bad idea, you also have to pay attention to spending and lifestyle. A few key moves can make a big difference.
* Pay Down All of Your Debts.
Lowering your "debt service" will give you more cash flow for regular expenses and the fun things you want to do. What does this mean?
Concentrate on knocking down your non-deductible debt like installment, vehicle and credit card debt.
You'll be a lot better off in retirement if you can own your cars and appliances and pay off your credit card each month as it comes due.
Also don't get trapped in student loans. If you're going back to school, see if you can get a grant or employer to finance your degree or certificate.
It's best to avoid for-profit college loans. By all means, don't take on "PLUS" loans for children or grandchildren. Also don't co-sign a private loan.
You could be on the hook for college debt well into your retirement. Stay away from this kind of borrowing.
Should you pay off your mortgage? While that's always desirable, it's probably the last debt you should pay off since the interest is deductible.
* Save to the Max in Your Retirement Plans.
If there's one no-brainer in retirement planning, this is it.
With 401(k)-type plans, you can not only write off the contribution on your federal income taxes, you can save even more if you're over 50.
Also don't forget ROTH 401(k)s or IRAs. You pay taxes on contributions, but not on withdrawals (if funds are held for at least five years and you're over 59 1/2).
Here are the contribution limits for this year from the IRS:
- The limit for employees who contribute to 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.
- The catch-up contribution limit for employees aged 50 and is increased from $5,500 (in 2014) to $6,000.
- Annual contribution caps on an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
- The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014.
- For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from $181,000 and $191,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
- The AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, up from $181,000 to $191,000 in 2014. For singles and heads of household, the income phase-out range is $116,000 to $131,000, up from $114,000 to $129,000. For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
- The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $61,000 for married couples filing jointly, up from $60,000 in 2014; $45,750 for heads of household, up from $45,000; and $30,500 for married individuals filing separately and for singles, up from $30,000.
* Plan To Downsize.
There are so many benefits to getting a smaller domicile, let me count the ways. You can reduce your monthly mortgage/rental costs, maintenance, property taxes and utility bills.
The bottom line is that you don't need to pay for all of that space. Even better is that you can sell your house and downsize to a condo/townhouse/apartment or smaller home.
If the place you're buying is less than the proceeds from your primary home, you can bolster your nest egg.
But when considering downsizing, carefully evaluate where you may be moving.
While some states may offer low- or no state income taxes, estate laws may be different, so you may need to update your wills and trusts.
Also pay close attention to cost-of-living, healthcare and other expenses and amenities if moving out of state.
Here are some suggestions for relatively low-cost retirement states, according to GoBankingRates.com.
1. New Hampshire
2. Delaware
3. Idaho
4. Wisconsin
5. Wyoming
6. Alaska
7. South Dakota
8. Michigan
9. Utah
10. Arkansas
Keep in mind that retirement is a holistic process, it's not just about location.
If you plan ahead, reduce spending/debt and streamline your financial life, it will be a lot smoother going when you decide to pull the trigger.
