Nine Rules to a Secure Retirement

Ignore the Old Rules of Thumb

For years, the rule of thumb was that you need 70-80% of your pre-retirement income each year to live comfortably in retirement. Don't fall for it. It is now recommended that you plan for needing 100-125% of your income. Yes, you'll have some expenses that go away -- like dry cleaning for work clothes and commuting costs. But think about new expenses you will incur, like travel. Plus, you must factor in rising prices on food, gasoline, health care and more.

Next: Retirement Rule No. 2

Don't Tap Your Retirement Funds for Anything but the Most Dire of Emergencies

18% of all American workers had a 401(k) loan outstanding in 2007. That number is surely bigger in these tough times.

When you are looking for a way to pay off debt, pay for college and just make ends meet, we know it can be tempting to borrow from your nest egg. DON'T DO IT!

Treat your retirement funds as a locked vault, not a piggy bank.

Next: Retirement Rule No. 3

Adjust Plans 5 Years Before You Retire

As devastating as the last two years have been, people under the age of 50 have many years to make up ground. Not so for folks who were 10 years or less from retirement and don't have time on their side.

Don't let this happen to you. You MUST adjust your retirement planning as you get closer to retirement. The last five years of retirement are no time to take investment risks. Adjust your investment strategy to focus on safety, income and guaranteed investments.

Next: Retirement Rule No. 4

Maximize Your Tax-Advantaged Retirement Plans

We don't care if it's an IRA, 401(k), Roth, or 403(b) ... just be sure you are taking full advantage of any tax-deferred retirement accounts at your disposal. They all work differently, but they all have tax benefits you won't get by stashing your nest egg elsewhere.

If possible, contribute the maximum amount allowed each year to these plans. And remember, IRAs have a catch-up provision that increases the amount you can contribute once you are 50 or older.

Next: Retirement Rule No. 5

Know the Right Time to Start Social Security

Starting your Social Security payments at the wrong time can cost you a small fortune. For example, if you were born after 1959 and start your payments at age 62, you lose 25% of your benefits. That means if you are turning 62 between now and 2016, and start your benefits at age 62, you will get 25% less than if you started your benefits at age 66. Better yet, wait until you are 70 to start taking benefits and you'll get 132% more than you would if you started at 66!

There's a huge financial plus to delaying your Social Security benefits. But your strategy depends highly on your age since the “normal” retirement age ranges from 65 to 67 depending on when you were born.

Check out this handy chart that shows the “normal” retirement age at which you can start taking full Social Security benefits.

Next: Retirement Rule No. 6

Know Exactly How Much You Need to Save

Sounds simple, right? But a whopping 60% of people surveyed don't know how much they need to save for retirement according to the Employee Benefit Research Institute.

One reason so many people don't know how much they need is because it can seem so darn intimidating to figure it out. Well, not anymore. We've put together a simple worksheet that will tell you in just six steps how much you need to save for retirement.

Studies show that people who know how much they need to save are much more likely to save for retirement -- so get to it!

Next: Retirement Rule No. 7

Don't Forget About Inflation

Too many people forget to factor inflation into their retirement planning ... and that's a huge mistake. Anyone who tells you not to worry too much about inflation rearing its ugly head isn't paying attention. The government is spending trillions of dollars in bailouts and stimulus programs and that will impact inflation.

That's why we have increased the inflation rate we recommend you use in your planning to 4%. It may be higher or lower at times, but that's about where we believe it will average out over the long run.

That means the 8% return you are counting on gets cut in half after you factor in inflation, greatly impacting your bottom line.

Next: Retirement Rule No. 8

Pay Yourself First

Let's face it, saving money for a long-term retirement goal can be tough with so many priorities competing for your money every day. So use this secret weapon: set up an automatic investment plan (AIP) that takes a piece of your paycheck and deposits it directly into your retirement account before you ever see the money.

This is a simple way to pay yourself first each month and create a regular investment you never even have to think about. You can set up an AIP with most banks and mutual funds.

Next: Retirement Rule No. 9

Start Today

We know you've heard it before, but we can't wrap up without saying it ... the No. 1 secret to a successful retirement is to start early. If you haven't, then there is no time like the present. Compounding is a very powerful tool you have on your side and every day counts. Here's a little example to drive the point home:

Let's say you make a one-time investment of $3,000 that earns 8% a year and never contribute another penny. If you make that investment at age 40, you'll have $20,545 at age 65. Not too shabby. But you could more than double the size of your nest egg without adding one red cent to your nest egg. If you simply started at age 30, you'd have $44,356!
So please, don't delay another minute. No seriously, start right now!

Next: More From the Dolans

More From Dolans.com

You can still enjoy the retirement you've dreamed of! Whether you are 30 or 60, use these tips today to build a financially retirement. If your nest egg has taken a hit, don't despair ... you can still rebuild your retirement savings. If you need to contribute more to your nest egg, use our money-saving tips so you can put more toward your retirement.