Retirement isn’t a question of if—if you’ll get sick, if you’ll have unexpected expenses, and so on—it is a question of when. It is also about making the right decisions now—preparing for the worst and hoping for the best.

Here are some things for which you should be planning as you chart your course toward retirement. This way, you can enjoy your golden years instead of working yourself into the grave.

Realistic future living expenses

Food, shelter, transportation, and clothing—these will all be more expensive when you retire. If you think a loaf of bread and a gallon of milk are expensive now, can you imagine how much more they will cost in 20 or 30 years?

A prime example: When I was in my teens, I purchased gas for my car at less than $1 a gallon. Now, almost 30 years later, I am paying upwards of $4 a gallon for gas, an increase of over 300 percent.

When you are younger and retirement seems far away, you just don’t think about inflation. But as the cost of living increases, you will need more retirement money to pay for things. The only way you can be ready for this is by setting aside more money in your retirement savings account now than you think you’ll need in the future.

Freedom from debt

Would you believe it if I told you that in 2012, Americans aged 50 and older had a higher combined balance on their credit cards than younger people did? Having debt at any age puts you at a higher risk for a financial disaster, but as you get older that risk grows exponentially.

Having little or no debt at retirement is extremely important. Let’s say you have a house payment of $2,000, credit card debt that costs you $200 every month, and a $300 car payment. When you are working, those payments might be manageable, but having to pay out $2,500 each month on a fixed income can really hurt.

Your goal should be to be completely out of debt by the time you retire, if not sooner. And that means setting aside money each month to pay down debts.

A larger emergency fund

Most experts recommend having at least three to six months of your living expenses in a liquid emergency fund, but that amount is for people who are working. At retirement, it might make sense to have more in your emergency fund than you did when you were working—unless you plan to go back to work after you have retired.

There is no magic number, but you might consider having at least one to two years of your post-retirement living expenses in an accessible emergency fund. That way, if you need a large amount of cash quickly, you can get it without having to pay the extra fees, taxes, or penalties you could face if you pulled that money from a retirement account.

In order to have a large liquid savings account when you retire, you need to get started funding it today. Be sure to add money to your savings account in addition to your retirement account each month. And in retirement, don’t give up saving money; you should still be adding to your savings each month.

There are many things to consider when planning for retirement. By thinking about these issues and taking early action on them, you greatly increase your chances of a comfortable retirement.

Steve Repak, CFP®, is a professional speaker and the author of Dollars & Uncommon Sense: Basic Training for Your Money.

Risks of target date funds

Funds within funds: Allocation issues

Target date funds are not funds by themselves. They are funds within funds. This can pose a problem when you want to own a certain amount in assets because there are many classes of funds in which you’ll be investing.

Blind investments

Target date funds are blind investments—they don’t take into account your goals or anything else in your portfolio. These funds also do not consider the implications of your other investments, the goals you’re attempting to achieve, the risks associated with those goals, or other income you may have in retirement.

Without these considerations, it’s as if this investment stands alone, which can be quite risky.

High expense

Target date funds appeal to people looking for a low-cost investment option. While many of the funds have low minimum investment requirements, they come with high expense ratios instead. These expenses include fees to instate the mutual funds as well as fees to manage them.

The benefits of target date funds

Despite the aforementioned issues with target date funds, millions of people continue to add them to their retirement portfolios. That’s because the benefits are often enticing enough to overshadow the risks.

Low minimum investment

Investing in target date funds doesn’t take a lot of money. You can start investing in some funds for as little as a few hundred dollars. This is attractive to investors just starting out or those that just want to dip their feet into the world of target date funding conservatively.

Hassle-free investing

Once you set up a target date fund, you can essentially forget about it. This appeals to many people who are not interested in becoming big investors but who want to start a little something in addition to their shaky 401(k).

Easy start

Many believe that target date funds are designed to fit everyone’s portfolio. This makes them simple because there isn’t much research involved.

Will you invest?

When trying to decide whether to add target date funds to your investment portfolio, you should thoroughly research your available options. Analyze asset allocation, diversification, quality of underlying funds, available fund families, and expenses involved.

Once you’ve researched all of these aspects, you’ll start to clearly see which one or ones are best for your portfolio, and you will be able to proceed with confidence.

Jeff Rose is a Certified Financial Planner who writes about financial planning topics at Good Financial Cents. His latest project, The Debt Movement, aims to help people pay off $10,000,000 of debt in 90 days. You can join the movement and get a chance to earn some of the $10,000 debt scholarship money by visiting DebtMovement.com.

Getting started on your retirement savings as soon as possible is most important. The longer you have to work toward your retirement plan, the closer you will come to meeting your retirement goal. If you have any debt, a top priority has to be getting rid of it. Meeting with a financial planner at least once is key to helping you figure out some of the areas where you might not be savvy. Being prepared to cut back and save everywhere will be paramount.

Mortgage and real estate

Paying off your mortgage or having very affordable mortgage payments is going to help significantly in your being able to retire early. Consider downsizing, refinancing, and increasing payments to reduce your mortgage debt as much as possible.

Purchasing real estate that can provide rental income indefinitely is another great way to increase your income potential for the future. That extra income can also help pay off other debt and mortgages while you prepare for retirement.

Conserve, reduce, and save

You are going to have to make sacrifices if you want to retire as young as 40. We have all heard about eliminating unnecessary expenses such as restaurant meals, coffee shop drinks, and luxury items. Retiring early is going to take a lot more than just that.

Consider moving the whole way you live to a minimalist existence. This means not only giving up the flat screen TV but also getting rid of the cable plan, the unlimited data plan on the phone, and the tablets, laptops, and desktops. Use one electronic device and take advantage of free WiFi.

Learn how to garden and grow your own food. Join a neighborhood co-op and share as much as you can. Take on a no-spending challenge for one year. Learn how to live with only the necessities. Cutting back and conserving during your early adult years will help get you closer to the goal of retiring at 40 because you will be able to invest the money you are saving.

Once you start cutting costs, it will become easier to find ways to save. If you go one year without buying any new clothes, for example, it might be easier for you to extend that for another year—or to make cuts to other areas of your budget.

Forget typical 10 percent savings plans—we are looking at saving closer to 50 percent of your income now. By saving this drastically, you can help guarantee that you will have the funds you need to retire early.

Retirement and savings accounts

Investing in accounts that will yield future returns is obviously a smart way to guarantee income for retirement.

• Money market accounts are like a combination checking/savings account, except that the interest rate is usually much higher than you would get with a regular savings account. You are limited on your withdrawals each month, but that shouldn’t be a problem because the point is to leave the money alone.
• CDs are another good choice as they also offer a decent interest rate and a way to increase funds over time. They have a fixed term and a fixed interest rate so you know what you are getting.
• Stocks are a riskier investment, but the rewards can really pay off if you invest wisely.

Your typical retirement account is not going to be very beneficial right away because you won’t be able to access the funds until much later in life without penalty. However, if you are in good health and expect to live a long life, having these retirement accounts for later is still a good part of your early retirement planning.

Jeff Rose is a Certified Financial Planner who writes about financial planning topics at Good Financial Cents. His latest project, The Debt Movement, aims to help people pay off $10,000,000 of debt in 90 days. You can join the movement and get a chance to earn some of the $10,000 debt scholarship money by visiting DebtMovement.com.

Most of us want to insure that our partner and/or children are taken care of financially should something happen to us, but there’s no need for fear. We purchase life insurance policies to help pay for our funerals and to provide money for supporting those left behind. But what happens when our children grow up and are financially independent, or when our spouse has enough savings and retirement to live comfortably? Do we need to maintain life insurance policies that don’t serve the purpose for which we intended them any longer? In most cases, the answer is no.

Life insurance isn’t meant to fund retirement. When you purchase a policy, you shouldn’t expect to be able to cash it out and use it for income. First, cashing out a policy can come with a hefty tax bill. Second the amount is not usually enough to sustain you for many years. You should instead expect that your policy will be used to help pay for the expenses related to death, including burial and final bills.

There is no magic family situation or age at which point one should automatically stop paying for life insurance. However, once a person reaches retirement age and has been paying on a life insurance policy for most of his or her adult life, the cash value of the policy is probably enough to cover the expenses for which it was intended.

To avoid paying the life insurance premiums while keeping the policy intact, look into the dividends. There comes a point where the annual dividends are higher than the premium. The policy holder can use the dividend amounts to pay the premium due. By doing this, the policy holder does not have to use any of his or her own money to sustain the policy, and the cash value of the policy is not reduced. Typically there will be some of the dividend left over which can be reinvested so that the policy will still grow a little.

If you no longer need the full value of the policy to support your loved ones, you can cash out part of it, tax free. In order to do this, the amount you withdraw must be less than the value of the premiums you have paid so far. You can use the money to help offset any retirement fund shortfalls, to pre-pay for funeral expenses, or to take a vacation. Whatever is left of your policy will be left to your heirs, tax free, after you pass.

Generally speaking, life insurance is created to help provide short-term financial stability. Once you reach retirement age, you should be able to stop paying on your life insurance policy unless you have a huge estate to protect, you start a family later in life, or you purchase a policy when you are older. In these situations, you would probably not be able to stop paying on the premiums for life insurance in your retirement years.

Jeff Rose is a Certified Financial Planner who writes about financial planning topics at Good Financial Cents. His latest project, The Debt Movement, aims to help people pay off $10,000,000 of debt in 90 days. You can join the movement and get a chance to earn some of the $10,000 debt scholarship money by visiting DebtMovement.com.

1. Do you have any liquid savings?

Nobody likes to plan for things to go wrong, but most of life’s emergencies can be taken care of with less than $1,000. Do you have at least this much on hand right now? If not, use some of your newly found cash to establish an emergency savings account. The $1,000 needs to be in a liquid vehicle like an FDIC savings or money market account because it isn’t a matter of if something will happen, it’s a matter of when. If you ever need to use this liquid savings, your goal should be to replenish it as soon as possible.

If you have addressed your emergency account and still have cash left over, consider the next question.

2. Do you have any debt?

You will build your wealth more quickly when you are earning interest on your money instead of paying it to someone else. Use your extra cash to pay down unsecured debt and debt on depreciating assets, such as vehicles you own.

I like to remind people that what the credit card company or bank charges you is guaranteed. If your credit card is charging you 16 percent, by paying it off, you are essentially earning an immediate 16 percent on your money.

While we are talking about credit cards, here is a bit of advice: Ideally you will only charge what you can pay off in full each month. But if you carry a balance, you should limit this to 30 percent of the total amount you can charge. For example, if your credit limit is $1,000, you shouldn’t have more than $300 carried over to the following month. I am not telling you to spread your balances around several cards but instead to limit your use of credit—and use it wisely.

3. Can you afford to lose this money?

You made be tempted to roll the dice for a higher rate of return by investing any leftover funds, but a good rule of thumb is to never invest money that you are not willing to lose. I don’t care whether you’re investing in a house, commercial property, stocks, bonds, precious metals, or any anything else. You can lose your money. If you decide that you still want to invest, consider meeting with a Certified Financial Planner™ to help you identify and reach your financial goals and objectives. CFPs are trained to explain the risk and cost associated with investing.

These three questions can help you decide how to allocate your resources anytime—not just when you have extra cash. It’s not always a bad thing to spend your money, but by paying off debt and saving or investing when you can, you’ll be better prepared for the future.

Steve Repak, CFP®, is a professional speaker and the author of Dollars & Uncommon Sense: Basic Training for Your Money.

How will the weather affect you?

Many people prefer living in warm, dry climates for health reasons. If you move to a place like Arizona, you might have fewer breathing and air allergy problems. Florida is also popular because of its warm climate. When you know your state almost never drops below freezing, you don’t have to worry so much about spending a week in the hospital because you slipped on a patch of ice.

Where can you get good medical care?

Most retirees need access to reliable healthcare facilities. Many also need additional services, such as at-home assistance. You can find these options in most metropolitan and even rural areas, but consider if you might need more specialized care in the future. If, for instance, your family has a history of lung cancer, you should consider living in an area with a hospital noted for its cancer treatment.

How will you get around?

If you retire at 65, you probably have years of safe driving ahead of you. At some point, though, your reflexes and eyesight could make it dangerous for you to operate a motor vehicle. How will you get around town when this happens? If you have family members willing to drive, then you might not have a problem. Some seniors pay drivers to take them out once or twice a week. Others rely on public transportation. Consider your financial and mobility concerns and then choose a city that matches your transportation needs.

What’s the cost of living?

Thanks to medical science, people are living longer than they ever expected. That’s terrific—unless your retirement savings don’t cover an extra 10 years. You can do more with your savings by living in a place that has reasonable housing, utility, and food prices. You should also consider tax rates. If you only have a limited amount of money, it makes more sense to live in Florida, which doesn’t have a state tax requirement, than California, which has an 8.25 percent tax.

Where you decide to live will depend on the factors that matter most to you. These concerns, however, should help you start thinking about what will and will not affect your decision.

Jeff Rose is a Certified Financial Planner who writes about financial planning topics at Good Financial Cents. His latest project, The Debt Movement, aims to help people pay off $10,000,000 of debt in 90 days. You can join the movement and get a chance to earn some of the $10,000 debt scholarship money by visiting DebtMovement.com.

Checking 401(k) contributions

Checking your 401(k) contributions and any matching funds that your employer contributes is relatively easy for most people. If your company has a human resource department, then it should have someone who keeps track of this information. Even if the office only hands out printed material during certain quarters, you can still request more up-to-date information.

Check your account online

Many employers choose retirement account plans that let investors monitor their money online. This makes it extremely simple for you to keep track of your employer’s contributions. Many plans even have websites that will give you access to software that helps you analyze how your accounts are doing. This could help you make adjustments to your investments to yield better results. Of course, you shouldn’t make any major decisions before consulting with a financial advisor.

The low-tech route

Most 401(k) plans will let you check your balance on the phone. Just call in and enter information that confirms your identity, and you can then check your balance quickly. It won’t give you any details, but it can help you stay on top of contributions. As long as you know approximately how much money your account has, you’ll know when something’s wrong.

If you are missing money

Keeping all of your 401(k) records helps ensure that all contributions end up in the right place. In addition to quarterly and annual reports that you receive, keep pay stubs showing how much money you contributed to the account. A large three-ring binder makes the perfect place to organize your information.

If you determine that your account is missing contributions, either from your employer or from your paycheck, then you need to address the situation immediately.

First, approach your HR director and point out the contradiction. He or she may have absolutely no idea that something has happened. Remember, it’s more likely that a computer glitch or banking error has caused the problem rather than someone intentionally stealing money from accounts.

If you don’t get a good answer from the HR director within a couple of days, then you might have to take further action. Again, it’s probably just a computer error, but there is a history of companies using 401(k) contributions to pay the bills during rough times. For example, the scandal that caused Enron’s bankruptcy had a lot to do with the company stealing from employee retirement accounts.

In the worst case, you might have to consult with a lawyer and contact your area’s district attorney to get the money you deserve. Depending on how much money is missing, and how many people are affected, the issue could be resolved in a matter of weeks. Then again, it could be a bigger problem that turns into a serious case. Keeping tabs on your retirement accounts throughout the year can catch a small problem before it turns into a big one.

Jeff Rose is a Certified Financial Planner who writes about financial planning topics at Good Financial Cents. His latest project, The Debt Movement, aims to help people pay off $10,000,000 of debt in 90 days. You can join the movement and get a chance to earn some of the $10,000 debt scholarship money by visiting DebtMovement.com.

Red flag: She won’t discuss her payment structure.

Financial planners get paid in various ways. Some of them get paid commissions on the financial products that they sell clients, some only get paid from the fees that they charge you, and others get paid according to a combination of commissions and fees.

Each of these approaches has benefits, but each also has negative aspects. What matters most is that your financial planner feels comfortable discussing how she gets paid. After all, her salary is coming from the money you pay for services and plans. It’s your right as a client to know how that money gets used.

Red flag: He gives you guarantees he can’t possibly control.

A good financial planner can help you make educated choices that will help your money grow. No matter how good he is, though, he cannot guarantee that your investments will yield specific results.

All investments involve risk. Some benefit from dramatically lower levels of risk, but you’re still placing a bet with any investment. If your financial planner says that he can guarantee a return on your investment, then he’s either lying or he doesn’t know what he’s talking about. Regardless, it’s time to move on.

Red flag: She wants you to recruit other investors.

Your financial planner has an unbelievable deal lined up that could make you millions of dollars in months. To make the most of the opportunity, though, she says you’ll need to recruit other people to invest. The more people you recruit, the more money you stand to make.

If you hear a pitch that sounds even remotely like this, head for the door. Chances are that your financial planner is involved in a Ponzi scheme. Ponzi schemes need constant streams of new investors to keep money flowing upward to people who joined the deal earlier. People often think that they’re making a ton of money—until they find out that it’s all an illusion. Ponzi schemes are also illegal, and participating could lead to jail time and huge fines.

Red flag: He doesn’t have independent certification.

Any company can hire someone, give him a little training, and call him a financial planner. Often, this employee only knows how to sell the products that the company wants to push. It’s not that the financial planner wants to cheat you. He might have your best interest at heart. Unfortunately, he doesn’t know enough to make good decisions that will meet your short-term and long-term goals.

Look for planners with degrees such as a CFP or CPA-PFS. People with these degrees are overseen by regulatory organizations. Plus, they should know a lot more about advanced economics and investment strategies.

Jeff Rose is a Certified Financial Planner who writes about financial planning topics at Good Financial Cents. His latest project, The Debt Movement, aims to help people pay off $10,000,000 of debt in 90 days. You can join the movement and get a chance to earn some of the $10,000 debt scholarship money by visiting DebtMovement.com.

How much has the tax increase affected individuals?

When the payroll tax holiday expired, it affected workers in a variety of ways. A person earning $50,000 annually will now pay about $3,100 in payroll taxes, where last year she only paid $2,100. For most people, regardless of salary, the increase is a considerable amount of money, even when it is spread out over the 52-week year.

Offsetting the increase with retirement contributions

The good news is that you can offset some of that tax hike by contributing more money to your retirement accounts. As long as you focus on tax-deferred contributions, you can lower the amount of income that gets taxed.

Let’s say you get paid $50,000 a year, but you don’t contribute any money to a 401(k) account. The payroll tax hike means that you will pay $3,100 by the end of the year. If you were to contribute $17,000 to a 401(k) account (the current maximum), your payroll tax burden would drop to $2,046. That’s actually less than you would have paid in payroll taxes before the holiday expired.

Granted, not everyone can afford to contribute $17,000 to a retirement account every year. If a 2 percent tax hike is killing you, then you probably don’t have enough excess money to fill your 401(k). Still, this shows that it is possible to lower your tax burden by making tax-deferred contributions.

Other ways to offset the tax burden

You can also look at other retirement and savings plans that don’t tax your contributions. If you have children, start putting money in a 529 plan that gives you tax advantages while helping them pay for college. Also, consider investing in a traditional IRA rather than a Roth IRA. Traditional IRA contributions don’t count as taxable income.

Depending on how much money you have and how much you have to spend just to survive, you could significantly reduce the burden of this tax hike by increasing your retirement contributions and making other smart moves with your money. Even if you can’t completely eliminate the hike, you can soften the blow a bit. Plus, you get those tax-free contributions back when you retire.

Jeff Rose is a Certified Financial Planner who writes about financial planning topics at Good Financial Cents. His latest project, The Debt Movement, aims to help people pay off $10,000,000 of debt in 90 days. You can join the movement and get a chance to earn some of the $10,000 debt scholarship money by visiting DebtMovement.com.

Negotiate with your credit card company

Credit card companies exist to make money. Don’t doubt that. But many of them realize that they can get more out of their customers by negotiating. A person who has no hope of paying a balance might walk away completely, leaving the company with a heavy bill.

Many companies will lower your interest rate to help you get out of debt faster. This gives customers hope and encourages them to make payments on time. That’s good for you and for the credit card company, so don’t be afraid to ask.

Prioritize your payments

Start by prioritizing your payments. If you have several credit cards, organize them by interest rate. Some people think that it’s best to pay off the card with the smallest balance, but that could cost you more money in the long run so weigh your options.

Your first mission is to eliminate debt from whichever card has the highest interest rate. Make minimum payments on the others, and focus any reserve money on the most expensive card. Start small. If you can only afford to pay an extra $10 this month, then that’s what you’ll do.

This will take time. Depending on how much debt you have on the card, it could take years. Stick to it. Eventually, that balance will reach zero and you can move on to the next card on your list.

Consolidate your student loans

Student loans can stay with you for decades. That’s not always a bad thing, though, when you take advantage of a low interest rate. Consolidating your loans puts all of your student debt into a single account. Depending on when you consolidate and what kind of interest rate you can get, you could dramatically reduce the amount you pay over the lifetime of your loan.

Also, right now student loans generally have lower interest rates than credit cards. Focus your extra cash on your credit card debt while you continue to pay your student loans on time.

Pay your bills on time

Late payments cause many people to stay in debt. When you pay a bill late, your interest rate can go up, and the company can also charge you extra fees. When you pay your bills on time, however, you don’t suffer those penalties. You get to keep more of your money instead of giving it to someone else just because you sent the check a few days late.

Build momentum

As you lower your debt, you will have more money. That extra cash comes from lower interest payments and from avoiding late fees. But don’t use that money to take a lavish vacation. Commit it to reducing your debt even more. Eventually you’ll find that you’re living without any debt at all. That’s when you really get to use the money you earn to enjoy life instead of barely making ends meet.

Jeff Rose is a Certified Financial Planner who writes about financial planning topics at Good Financial Cents. His latest project, The Debt Movement, aims to help people pay off $10,000,000 of debt in 90 days. You can join the movement and get a chance to earn some of the $10,000 debt scholarship money by visiting DebtMovement.com.