Mapping Out Financial Success with Retirement Planning
Here's everything you should know about retirement planning to help you build a financially stable future.
Planning your retirement can be overwhelming, but it is also one of the most important things you can do for yourself. You may think that this happens later in your life when you’re about to retire. However, it starts earlier than you think.
Here’s everything you should know about retirement planning to help you build a financially stable future.
Why Should You Consider Retirement Planning?
Retirement planning is setting up your finances so you’ll have enough money to cover your living expenses after you stop working. Determining how much money and income generated from investments you’ll need are all part of the plan. This will ensure that your needs are met, and your savings can sustain your day-to-day in retirement.
There are many reasons why you should consider retirement planning as early as you can. Here are some of them:
- Planning your retirement early can help determine when you can stop working and how much money you’ll need to live comfortably without working.
- This can also help you decide the type of retirement lifestyle you want.
- It may even relieve some of your stress and anxiety concerning your financial security after retirement.
What Do You Need to Consider?
You don’t want to be working until your bones are frail and brittle. As such, it’s essential to know when you want to retire and how much time you have until then. Knowing when you plan to stop working will help guide you through the rest of the process.
After determining when you want to retire, it’s time to consider how much money you’ll need each month. This is where income concerns come into play. This includes the cost of necessities like housing and food or other expenses like entertainment and travel.
If you plan on taking up a new hobby or pursuing a sideline entirely different from your career path, your income needs may be higher than others.
When planning your income needs, consider your current financial situation. This will help you determine how much money you can save and what expenses to eliminate. Also, don’t forget to leave some room for inflation as this can affect the prices of your needs.
The investment options available vary from person to person based on their needs, goals, and risk tolerance levels. If you’re a risk-taker and have disposable income that you don’t mind losing, stocks may be a good option. But for those who like to keep it safe, government bonds are one of the best options for you.
The best investment strategy is not to put all your assets in one basket. You can split your money into stocks and the other 60% into bonds. This means you have more chances of generating a greater investment. Make sure you follow the strategy that suits your needs for the present and future.
How Much Do You Need for Retirement?
The first step in figuring out how much money you’ll need for retirement is how long you’ll live. The longer your retirement period, the more money you’ll have to save and invest. This ensures you have enough income when the time comes to stop working.
Your age is also important. If you’re in your 20s or 30s, it might make sense to focus on saving up as much as possible. Doing so can take your worries away about running out of cash later in life if something unexpected happens, like a medical emergency.
On top of this, your retirement savings should keep pace with your lifestyle. Although there will be changes to it when you grow old, you may have non-negotiables that you’d want to spend on.
Also, don’t forget to leave some room for inflation and tax rates since these will significantly affect your expenses.
What are the Types of Retirement Plans?
Employee-Sponsored Retirement Plans
The money you contribute to these plans is tax-deferred. This means you don’t have to pay taxes on your contributions until you withdraw the money later. Additionally, many employer-sponsored plans offer matching contributions that help boost your savings even more.
It has several types, including thrift savings plans, 401(k)s, 403(b)s and 457, all of which are tax-advantaged savings plans, giving you tax benefits for contributing money.
Individual Retirement Accounts
This is one of the most popular methods for retirement savings. It allows you to save money tax-free and deduct contributions from taxable income depending on the account type.
You can choose from two types, varying in their tax benefit. Traditional IRAs don’t let you pay taxes when withdrawing during retirement. However, when you remove them, you’ll need to pay any growth within the account.
Meanwhile, Roth IRAs require you to pay taxes at your rate when withdrawn during retirement. However, withdrawals are made tax-free once retired, giving Roth IRAs a better advantage over traditional ones if your tax rate is expected to be higher when retired than when working.
Pension plans provide long-term income in exchange for contributions made by both the employee and employer. They’re meant to supplement other retirement savings vehicles such as an IRA or 401(k).
Self-Employed Retirement Plans
Self-employed retirement plans allow you to set up your retirement plan and save for your future without relying on other people or companies. This can be a 401(k) or an IRA; the only difference is that it is flexible and customizable to suit your needs.
Save Up for a Financially Stable Future
Having a financial game plan is essential for any young professional. Whether you’re a stay-at-home parent looking to build a retirement fund or have several decades of work, having a plan can often be the difference between retiring financially stable and retiring with financial headaches.
By outlining an action plan and taking steps to maximize your retirement contribution, you’ll be able to make the saving process for retirement easier and more rewarding. But that’s a big part of it—it’s up to you to create your roadmap for success.
Marc Daner is a Registered Investment Advisor with three decades of experience. He is a staunch and knowledgeable advocate for financial success. He can help plan for a secure retirement; manage assets, liabilities, and cash flow; and avoid or defer income, capital gains, and estate taxes.