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Retirement

7 steps to a financially secure retirement

Nanci Hellmich
USA TODAY
How to prepare for a financially secure retirement.

Preparing financially for retirement may seem virtually impossible. How can you tuck away enough money for your later years given your limited income and never-ending expenses?

It's no wonder that a recent survey showed a third of people in the USA have nothing saved for their golden years.

"Retirement is a big stew, and there are so many ingredients that you don't know how the recipe is going to come out," says Eleanor Blayney, consumer advocate for the Certified Financial Planner Board. You don't know how healthy you'll be, how long you'll live and how the markets will perform, she says.

But there are several steps you can take to have a more financially secure future. Instead of focusing on what you can't control, says Blayney, focus on what you can control. These things include your current spending, your savings rate and the allocation of your assets.

The recipe for success is to start early, save the right amount and invest wisely, says certified financial planner Michael Dalton, who is the author of some 100 books on retirement and financial planning.

Here are seven ideas for preparing for a financially secure future:

Save an appropriate amount. You should save 10% to 13% of your gross income for retirement, Dalton says. This includes your employer match so, if you're getting a 3% employer match, you need to save 7% to 10% of your gross pay.

Cut spending. Most people can look at their spending and find ways to cut items they really don't care about, putting that money saved toward retirement, Dalton says.

You need to start with a detailed list of your line-item expenditures, then pick out four or five things that are not essential, he says. Some ideas: Cut back on specialty coffees, adjust your thermostat to reduce energy costs, cut out your home phone, stop buying lunch out.

Invest wisely. Assess your tolerance for risk and invest your savings in ways that are appropriate for you, Dalton says. You can use online risk-tolerance tools or spend a couple of sessions with a financial planner.

• Take full advantage of tax-deferred accounts such as 401(k)s, 403(b)s, 457s, annuities that are not subject to current income tax and traditional IRAs, Dalton says. Maximize your contributions if your objective is to defer current income taxes. Some folks, such as people who currently pay low taxes but expect their tax rate to increase, may be better off investing in a Roth IRA or the Roth component of a 401(k) or 401(b), he says.

Evaluate health care coverage and medical services. Make sure you have adequate coverage, Blayney says. "Even when you become eligible for Medicare, you will likely need a supplemental policy to cover what Medicare does not."

Research housing options. For many people, their homes become even more important in retirement because they spend more time there, so it's important to think about this in advance, Blayney says. Most people want to age in place, she says. "A lot of that's driven by family ties and community ties."

Those who have the ability or some flexibility may want to retire to a place that's less expensive. There's tremendous variability in the costs of living and property/real estate taxes in different areas, she says. "This is important to those who want to find a pared down way to live to make their retirement stash last longer."

Some people may want to start researching retirement communities that have medical services and long-term care built into the setting, she says.

Start thinking about when you are going to take Social Security. When you take Social Security is very important, Dalton says. You can take it anytime between the ages of 62 to 70. If you take it at age 62, you get 25% less than you would if you waited until your full retirement age, he says. (If you were born between Jan. 2, 1943, and Jan. 1, 1955, your full retirement age is 66.)

If you wait until 70 to take it, you get 32% more than you would have gotten at the full retirement age of 66. So the amount almost doubles between ages 62 and 70, Dalton says. "I've advised people to take Social Security at age 62 because they needed the cash flow to retire. I've also told people to wait until age 70 because they didn't need the money to retire."

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