Do you want to live a comfortable life during your golden years? Then, you should think about retirement planning. In fact, you need to have enough money to live for at least 30 years in retirement. But without proper preparation, outliving your money will be a real concern. Read this guide, and we will share some useful tips that you can follow to plan your retirement.
Save Early and Often
The sooner you save, the more time your money will have to grow. This is where you need to look at the concept of compound interest. Even small contributions you regularly make over decades can snowball into a sizable nest egg. This is why experts recommend saving at least 10% to 15% of your income. If you can do it during your 20s or 30s, you will not have to worry too much during retirement.
Where should you save money? You can arrange automatic transfers from your paycheck to a 401(k), IRA, or any other investment account. Then, the savings would happen effortlessly with time.
Get the Most out of Retirement Accounts
Tax-advantaged retirement accounts can offer much-needed assistance to your retirement. A Roth IRA account is a perfect example of such an investment opportunity available. The best thing about starting a Roth IRA account is that you can withdraw your money tax-free.
To get the most out of your Roth IRA account, you should maximize contributions to the workplace retirement plans. The current contribution limit for IRAs is $7,000 a year, and for 401(k) is $20,500 a year. If you are above 50, you will be able to contribute an extra $1,000 and $6,500, respectively.
Invest Aggressively When You Are Young
You need to think about retirement at least 30 years ahead. This is the ideal time to start investing your money aggressively. The stock market is a good place to kick off your investments. If you look at the historical records, you will see that the stock market offers a return of around 10% per year. There are periodic downturns, such as the downturn that happened during the COVID-19 pandemic. But still, you can make your money grow 10% per year on average.
Since you are young, you will also have enough time to ride out short-term volatilities. But when you are retiring, you can shift a portion of the portfolio into a conservative fixed-income asset. Bonds are a good example of such an asset. However, you must still maintain some stock exposure during retirement. This is where working with a financial advisor can be helpful. Then, you can figure out the optimal asset allocation strategy that you should follow.
Consider Delaying Your Social Security
It would be possible for you to start claiming your Social Security benefits when you are 62. However, it would be better if you could wait until the age of 70. Then you can increase it by 8% per year. This would be a bonus opportunity available for you to increase your monthly income during your retirement.
For example, let’s assume you are eligible to receive $1,000 monthly from Social Security when you are 62. But if you delay it until you reach 70, you will be able to receive $1,860 per month. This is why you need to review your overall income sources in retirement and then pick the best time to tap Social Security.
Have a Pension? Learn Its Features
Do you have a traditional pension from an employer? Then, you must spend some time understanding how it works. You need to do this while you are still working. Ensure you are clear about the amount you will receive and when you can start receiving an income. You must also check if your dependents are covered by it.
For example, some of the pensions offer a lump-sum payment upfront. This is where you need to evaluate your options upfront. Then, you can choose the proper arrangements supporting your retirement plan.
Challenges to Overcome During Retirement Planning
Retirement planning is not the easiest thing to do. While you work towards planning for your retirement, you will encounter numerous challenges. Let’s quickly look at a few such challenges you will face and learn how to overcome them.
- Job Loss or Disability
Losing a job or leaving the workforce with a health condition can strain your retirement preparations. This is why you need an emergency fund with living expenses as a buffer. If you qualify for Social Security Disability Income, you can file for it and replace your income.
- Dragging your Debt
Entering retirement without credit card balances, student loans, mortgages, or any other form of debt would be ideal. This is where you need to plan to pay off all debt before retirement. Otherwise, you need to downsize and consolidate payments.
- Underfunding Retirement
Most people out there have saved under for retirement. This would put them at risk of significant lifestyle drops without enough income. This is why you need to set savings goals early. Then, you must regularly calculate and see what total savings you need for retirement.
- Long-Term Care Needs
Up to 70% of the retirees would need some long-term care. Medicare will not cover extended nursing home or other home health care costs. This is why you need to purchase a long-term care insurance policy. Or else, you need to consider options such as reverse mortgages to fund potential needs. Failing to plan for care needs can bleed retirement savings quickly.
Final Words
Retirement planning is a career-long process. This is why you must consistently save, invest, and plan early. Then, you can experience the best chance of enjoying your golden years without financial stress. Please take a look at the tips we shared above and come up with your strategy. Then, you need to stick to it and enjoy your retirement.
