Roadmap for Retirement Planning No Matter the Age

Deficits, debt ceilings and Medicare, oh my! Ive got a feeling were not in Kansas anymore, Toto. But what can we do personally to get out of this whirlwind of confusion? Here is a yellow-brick roadmap to help you get to the emerald retirement city.

Your retirement planning needs to begin as early in life as possible. The Social Security system was never meant to be the sole source of retirement income for Americans, it was meant to provide a minimum standard of living, and changes are coming to the system.

The only requirement to opening an IRA is to have earned income from a job or self employment. Putting a few dollars away as early in your working career as possible will give you the greatest financial asset of all: compound interest. My wife and I started our sons IRA when he came to work in our CPA office at age 12 as an IT guy, and I have offered that advice to hundreds of clients over the years. As an added benefit, the IRA may be tapped to pay for college without penalty or saved for retirement--a feature not available to traditional college-savings plans.

But what if youre already past the early stages of savings and are now in your 30s, 40s or 50s? The best tax shelter in America is the 401(k) plan; if you have one, take advantage of it now. Most 401(k) plans require a minimal level of employer matching, so at least put in the amount that your employer agrees to match--its essentially free money for your retirement. Once you start participating to a 401(k), set a goal of increasing the amount you contribute by 5-10% every year, so that by your late 40s, youre putting in the maximum allowed amount ($16,500 this year, or $22,000 if older than 49).

If you dont have a 401(k) at work, start an IRA now. You can deposit $5,000 this year (plus $1,000 more if you are older than 49 on Dec. 31), and deduct it on your tax return if you have it deposited by April 15 of next year. For many Americans that $5,000 is hard to come by, so try this little trick: If you had a car payment of say, $400 per month, turn that into an IRA deposit of $400 per month. Make them both through automatic withdrawal and continue as if the IRA deposit is a loan payment, like the loan on that car. What youre essentially doing is lending yourself $400 every month and then paying yourself interest through the earnings. What if you cant come up with $400 every month? Then do $200 or even $100 to get started. As an example, a 35-year-old person who deposits $200 every month until they are 65 will have more than $200,000 if they earn at least 6% every year.

Another good goal to set it so make yourself debt free at 65. This means no more 30-year mortgages (anything more is a horrible financial mistake), and no cash out re-financings after you hit your mid-40s. Debt free at 65 means that whatever income you do have will go toward living, not toward the profits of some bank.

Workers should also not overlook one or two of the other benefits that Congress has left alone: the cafeteria (or 125 or flex) plan and the Health Reimbursement Account. These two misunderstood and underutilized benefits provide some of the best tax-savings areas available to Americans and should be maxed out to their limits for most of us.

We all know that Medicare is in for some big changes. What we dont realize is that Medicare never has paid much toward long-term care, so protect yourself and start looking at long-term care insurance once you are in your mid to late 40s, when it make the most financial sense. Look for these five features in any long term care insurance plan:

1. Minimum payment of $200 per day;

2. Inflation protection;

3. Home care provision;

4. 90-120 day waiting period; and

5. Five-year benefit period. These features make it affordable and practical. If you are 50 years old you can expect to pay $1,500-$2,500 annually for this coverage.

Here is the yellow-brick roadmap in a timeline:

Bob Jennings is a CPA, EA and CFP and author of Understanding Social Security & Medicare His website is and he can be followed on Twitter @Jenningsseminar