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Seven Ways To Plan For Retirement

Gain the Financial Advantage
Saving for your future can be challenging, especially when your paychecks are going towards the present. You spend so much time juggling bill payments and additional expenses that it can seem nearly impossible to save money. But, with a good 401k plan and alternate means of saving, you can get on the right track towards reaching a financially secure retirement.

Anticipate All Expenses
Even though your living expenses during retirement may only be 70% to 80% of those before retiring, try to remember that you will not have your normal paycheck and your Social Security benefits will probably not be large enough to let you live the lifestyle you want.

The actual amount you will need depends on your anticipated expenses, the level of Social Security benefits, your tax situation, the earnings rate on your savings and your goals about leaving money to heirs. It can get pretty complicated, but the bottom line is that you will probably need and want a large retirement nest egg. The best ways to have those funds are to take advantage of employer provided retirement plans and other options while you are still working.

Enroll in a 401k Plan
If your employer offers a 401k plan or some other form of retirement plan, be sure to participate. The funds you accumulate there can be a large source – if not the major source – of your retirement income. In addition, these plans have benefits to make the process easier and more effective. They are convenient, most employers add to your contributions, your earnings are tax deferred and many plans offer investment flexibility.
To help you maximize the benefits of a 401k plan, here are four ways you can contribute.

  1. Participate in the plan. As simple as this sounds, some studies have found that many choose not to participate. Even minimal participation makes sense.
  2. Contribute as much as you can. Your plan may have limits on the portion of your wages you may contribute. For 401k plans, the annual limit for employee contributions increases to $16,500 for 2009. In addition, a catch-up provision was added that enables participants age 50 or higher to make an additional contribution (up to $5,500 for 2009). Determine what you can afford and make the largest contribution you can.
  3. Get the entire employer's match. Review your plan to understand how the employer's contributions are made and allocated. Your Human Resources department should be able to help you.
  4. Use a sensible investment strategy. Choose a combination of investment options that match your time horizon and risk tolerance. Generally, longer time horizons and greater risk tolerance dictate a more aggressive investment strategy with greater use of equity investment choices.

Alternate Retirement Options
Funds from your retirement plan and your Social Security benefits can provide a great deal for all of your needs, but there are other options you may want to consider.

  1. Traditional IRAs. Making annual contributions to an IRA can add up significantly, especially if you start early. The contribution limit for 2009 is $5,000 and the limit is scheduled to increase for inflation in coming years. In addition, you can make larger contributions if you are age 50 or over. There are rules about eligibility and tax deductibility to consider, but do not ignore this powerful tool.
  2. Roth IRAs. This relatively new planning tool offers many of the benefits of traditional IRAs, but the extra benefit of distributions never being subject to income tax. As with traditional IRAs, there are eligibility rules to consider and it may be advisable to consult with a tax or retirement planning professional to get a complete understanding of the rules.
  3. Other savings. IRAs offer tax benefits that make them ideal for accumulating funds, but saving and investing in a regular account still makes sense. Consider some form of automatic savings plan that moves funds from your checking account into a “special” account every month. This forced discipline makes it easier to develop the savings habit.

Here are a few Bank of Hawaii products you may be interested in:
Deposit IRAs
Investment IRAs

A Bank of Hawaii Deposit IRA or Investment IRA may be a useful tool for helping you reach your retirement goals.