After decades of working and saving, many people hope to retire with more than enough resources to live comfortably. If you’re planning to retire any time soon, it’s best to start preparing with whatever you have right now. If you’re not sure where to start, here are a few tips to consider when planning for your ideal retirement.
1. Determine the Needed Resources During Retirement
The first step to planning for your retirement is to educate yourself. You need to calculate and know how much money you’ll need in retirement to live comfortably. Congenial living is relative, which is why this research is essential. Financial planners typically calculate this estimate using your current income, pre-tax contribution to your retirement fund, how often you’re paid, your estimated social security benefit, current retirement savings, and the desired age at which you’ll want to retire.
If you’re lost on how to go about these calculations, you can consult with financial planners like Prime Wealth Advisors, who’ll provide you with an estimated income based on the retirement you dream of.
2. Estimate Retirement Expenses
You can create an estimate of your resources during retirement, but you’ll also need to consider certain expenses that might not be constant. A typical example is your healthcare costs. There’s no denying that healthcare costs tend to increase as we age. For this reason, it should be a top priority.
Also, think about what you’re likely to spend the most on; clothes, commuting, and perhaps especially travel. Factoring in these expenses will allow you to cater to all circumstances, both seen and unforeseen, and enable you to live as you desire without stressing about how to pay off bills.
3. Start Saving and Investing
Saving is an essential habit everyone needs to cultivate. When you save, you can realize specific goals and dreams faster. You can also guarantee the best retirement life. Regarding retirement, most financial experts advise putting aside 10 percent of your salary and general income for your retirement fund. If you have a shorter time to retirement, you might have to increase this percentage to accumulate a significant amount of money.
The trick to saving is to be consistent. Suppose you can start saving 10 percent and bump that up by 1 percent yearly. If you’re skeptical about saving, you could resort to investing the money in IRAs, mutual funds, life insurance, or Roth IRAs.
4. Diversify Your Investment Portfolio
Regarding investing, many financial experts suggest investing with a major consideration for your risk tolerance. While this is true, it’s also true that diversification of investments is an excellent way to invest for growth. Diversification means that instead of shying away from investments such as stocks or mutual funds, you can curate your options to include a mix of low- and high-risk investments.
5. Don’t Sleep On Retirement Accounts
When planning for retirement, it’s always a good idea to study retirement plans such as your 401K and IRAs, and if possible, work towards increasing your retirement contributions to these plans. If you’re over 50, you can set aside more than the usual contribution. Try to make use of this as much as possible.
The closer you are to your retirement age, the more profitable it’ll be for you to consider account consolidation. This is a great way to simplify investment management, as you combine similar IRAs within an institution.
6. Learn About Your Social Security
Having in-depth knowledge of your social security and how well it fits into your retirement plan is another great thing you can do when planning for retirement. In some countries like the United States, you can draw social security benefits at 62, but the later you draw, the higher the amount you’re bound to get.
Social security allows middle-income earners to collect about 40 percent of their pre-retirement income, and all benefits from social security are taxed, with the taxes going up to 85 percent of your overall check.
7. Reduce All Debt
One major course of financial issues during retirement is debt. Many of us take out mortgages and car loan plans throughout our lives and we may still make payments even during retirement. To minimize this, you should strive to downsize your debt as much as possible. Create a plan with your financial expert to help accelerate all mortgage payments so that your loans are paid off in full before retirement catches up with you. While working on these huge loans and payments, don’t create new debt. Use cash instead of credit cards to dodge any new credit debt.
8. Plan Where You’ll Retire
Where do you plan on retiring? Where you live during retirement is a major determinant of how you spend your resources. Moving from an expensive location to a low-tax area means you spend less and have more money to use for other things you care about. Moving can also be from one house to another but within the same vicinity. List all the factors required before choosing where you’ll live. These factors include economics, family, education, or living experience. Once done, you’ll know whether you’ll be economizing or living without restrictions.
9. Track Your Progress
At least once or twice a year, review your IRA and 401k plans to know whether or not you’re on the right track to achieving your goals. Take a closer look at your asset allocation plans, and review every account according to your risk tolerance and overall end goals. When in doubt, seek expert help to better understand your options.
You can make a catch-up contribution or change your deferral if you’re saving more. If you’re contributing less, you decide how best to bump up the savings to meet your target. Keep all your contact information as current as possible, and update any account beneficiaries when necessary. Contrary to what many believe, it is never too late to start preparing for retirement.
Anyone can start retirement preparations at any age, and with any kind of income. To ensure that you enjoy the retirement you’ve envisioned, learn as much as possible from the financial experts at your disposal, set realistic planning goals, and be consistent to get the best results.
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