Planning for your retirement will take time, but it is one of the most important things that you can start doing. Regardless of your age, thinking about what happens in the future and how you will have money after retirement is a good idea. You have to consider your retirement goals and how long you have to meet them. This will determine how much you have to start putting away and how you are going to invest and create a plan that will help you in your golden years. Let’s look at some of the most important things you need to know.
When Should You Start Planning
The best time to start planning is years ago. The second best time is right now. Ideally, you will have started your retirement planning when you were in your 20s, but this is not always possible for one reason or another. The earlier you start planning the more time you have for your money to grow, but that doesn’t mean that you should give up if you are already nearing retirement age. It just means that you have to approach things differently because you have a different time horizon.
Start with a 401(k) or a Retirement Account
If you have an employer that offers a 401(k) or some other type of employer retirement plan with matching dollars, it is well worth considering. Put in as much as possible to get the maximum match from your company. It’s essentially like getting free money that you can use for your retirement. The younger you are when you set up the 401(k) the better.
Of course, we aren’t all lucky enough to have an employer that provides these programs. In these cases, you will want to look into opening a retirement account on your own. There are many retirement plans available, and you will want to find one that can provide tax advantages if possible. An IRA is a good option, and you can open these through a range of brokers.
How Much Money Is Needed for Retirement?
How much money should you be putting into your retirement account and investments? How much do you feel that you will need for retirement? With rising prices, it can often be difficult to determine exactly how much you will need, but you can get a ballpark figure.
The amount of money that you need to retire will vary from one person to the next. It will depend on your current income and expenses and how much you feel those expenses could change when you retire.
Knowing how you want to live can give you a better idea of how much money you will need for your retirement. Think about the type of lifestyle that you want to live, as well. If you want to travel and spend during retirement, you will naturally need more than someone who is frugal and who plans to downsize.
Create a target dollar amount that you want to work toward for your retirement goal and strive to get above that number.
Select Your Retirement Investments
If you still have 30 years to retirement, it’s okay to put money into riskier investments, such as stocks, for a time. Stocks are considered risky because of their volatility, but they can perform better than bonds over a long period. However, you will need to hold them for at least 10 years. If you are nearing retirement age, you might want to invest a little more conservatively, such as in a fixed annuity.
When you are investing, take the time to think about your investment goals and your risk tolerance. You need to be sure you are comfortable with the types of risks you are taking with your money. If you have long-term investments, you mustn’t panic when you see a downturn in the market. This can happen, and your investments can bounce back in a few years. Instead of panicking and selling during a downturn, consider buying more if you can. This way, when the market picks up again, it will mean even more money for your retirement.
Don’t Rely on Social Security
Social Security benefits will help to add to your retirement income, which is nice. However, times are changing and the amount that you are getting from these benefits will not be enough to pay for all of your expenses. Additionally, there is always the worry that the benefits will eventually run out. While they can make a nice supplement, you shouldn’t rely on the money from social security when you are putting together your retirement plan.
Ideally, you will have a plan that will provide you with the money needed for retirement without Social Security. Then, the money received from Social Security will be an added boost.
Consider Putting Off Retirement for a Couple More Years
Although you could get full Social Security benefits when you retire at 67, you will find that if you wait until you are 70, you will have more benefits on which you can rely each month. For many, putting retirement off for a couple of years, if possible, is a good solution. It might be nice to have more downtime in your golden years, but it is not always in the cards. Even working a part-time job or turning a hobby into a money-making opportunity can be a good option for some added income.
What Should You Do?
Financial planning for retirement will look a little different for everyone since we are all coming from different jobs and walks of life. You need to take the time to sit down and think about what would work well for your needs. This can be difficult and sometimes, it may be better to find a financial advisor that can point you in the right direction for the steps you need to take. They can help you to be more prepared for your eventual retirement, whether it is 30 years away or a mere five years from now.
Resources:
https://smartasset.com/financial-advisor/financial-planning-retirement
https://www.investopedia.com/articles/retirement/11/5-steps-to-retirement-plan.asp
https://www.nerdwallet.com/article/investing/retirement-planning-an-introduction
