This article will provide you with 5 retirement planning steps to take. Many people look forward to when they will leave the workforce and experience the blissful years of senior retirement.
However, more than just looking forward to retirement, you need to plan ahead for it. This is essential if you want to have a secure and comfortable retirement.
5 Retirement Planning Steps to Take
Also, if you are concerned about your future after retirement, then it is essential you take key retirement planning steps as early as possible.
Below, are some important retirement planning steps that you should take
Write Down Your Retirement Goals
This is the first retirement planning step that you need to take. You need to write down your retirement goals based on the lifestyle you want to lead. This goal should include the age at which you want to retire, where you want to retire, and how much you need to retire.
Determine How Much You’ll Need to Retire
This is one important retirement planning step to take. You have to determine how much you’ll need to save for retirement to support your lifestyle. If you know how much you need for retirement, you’ll be able to know if you have enough income sources to fund the kind of retirement you want.
You’ll also know how to strategize to set more money aside to meet your goals based on your time horizon. The amount of money you’ll need to retire depends on your current income and expenses and how you think those expenses will change in the future. Since everyone’s circumstance is different, it’s worth calculating the retirement savings ideal for your situation.
Choose a Retirement Plan That’s Best for You
It is not just enough for you to determine how much you need to retire. You also have to decide where you want to save it. The power of compound interest works in a way that the longer you leave your money in an account, the more money you can potentially earn. It’s very necessary that you take advantage of that as early as you can.
Hence, you need to invest in the best retirement plans that offer tax advantages, and/or additional saving incentives. Nowadays, numerous retirement plans work well for saving for retirement. This includes 401(k), Roth and traditional IRA, SEP IRA, Self-directed IRA, Simple IRA, and Solo 401(k). If you can save in two or more retirement accounts, then that’s added advantage to you.
Choose Your Retirement Investments
Lots of retirement accounts allow you to access a wide range of investment assets. This means that with the funds in your retirement account, you can invest and increase your money. These assets include stocks, bonds, mutual funds, and more.
However, before you decide on an asset to invest in, you have to know your time horizon. If you are still young, the idea of investing aggressively in both high and low risks assets could be a good option. Furthermore, if you are near retirement, you’ll want to reduce your investment risks to more conservative assets.
Plan for the Unexpected
When planning for retirement, it’s very easy to forget to plan for the unexpected. However, it’s important that you plan for the unexpected now so, you won’t be caught off guard in the future. Hence, you need to create an emergency fund so that unplanned expenses won’t burn through your retirement savings.
Although you can’t predict what will happen, it is essential to set aside some money for unexpected expenses like higher-than-expected medical costs. If you don’t, you might end up using your retirement savings to cover those expenditures.
What is the Biggest Expense in Retirement?
The biggest expense most people face in retirement is housing costs. This is because housing expenses are numerous. They include mortgage payments, utilities, and/or rent.
What are the Sources of Retirement Income?
The main sources of retirement income are
- Social security.
- Personal savings and investments.
- Defined benefit plans.
- Individual Retirement Accounts
- Defined contribution plans.
What are Some Key Tips for Retirement Savings?
Below are some vital tips to take in planning for retirement
- Start saving for retirement now.
- Take advantage of your employer’s 401(k) plan.
- Open an IRA.
- Take advantage of catch-up contributions if you are above age 50.
- Plan for inflation.
- Work with a financial professional to help you manage your retirement goals.
What Should You Not Do When Planning for Retirement?
Some retirement planning mistakes you should not make include
- Quitting your job.
- Not saving for retirement early.
- Failing to have a financial plan.
- Not taking advantage of your employer’s matching contributions.
- Poor tax planning.
- Failing to rebalance your portfolio.
- Not investing wisely.
- Cashing out retirement savings early.
- Taking social security early.
What are the 7 Stages of Retirement?
The seven stages of retirement are
- The preretirement phase. This is the phase before the retirement event which involves financial planning.
- Rest & Relaxation.
- Rest & Relaxation.
What are the Top Challenges You Could Likely Face in Retirement?
If you do not plan properly for retirement, the top challenges that you could likely face are
- Outliving your retirement savings.
- Medical costs are higher than expected.
- Unplanned expenses.
- Social security policy changes.
- Stock market volatility.
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