October 13, 2021
Almost everyone plans to one day be able to stop working and enjoy the freedom and fun of retirement. And with today’s seniors living longer, healthier, more active lives than ever before, it’s never been more important to make sure you’ll have income that provides for your lifestyle long after your working days are behind you.
Planning for retirement and saving money for the long term really should begin as early in your earning years as possible. But, even if you’re getting close to retirement and you feel you should be doing more, it’s never too late to start taking steps toward securing your financial future.
This blog post will lay out several steps for building a long-term financial plan and some do’s and don’ts of planning for retirement.
When you’ve reached retirement age, you may be fortunate enough to have paid or nearly paid your mortgage. And you’re not likely to still have education expenses for children. But that doesn’t mean your expenses are guaranteed to drop significantly. It’s estimated that you’re likely to need at least 80% of the income you made during your working years to adequately fund your retirement if you expect to keep living the same lifestyle.
However, it’s important to realize this number of 80% does not take into account any possible increase in distant future expenses if assisted living, skilled nursing, or memory care ever become necessary. And those expenses can really add up. You want to be prepared, and with proper planning, you can be.
Now you know you need 80% of your current spending to live comfortably in retirement. But 80% of what? It’s not difficult to figure out what you spend each month. If you sit down with your checkbook and credit card statements, you’ll get a clear idea. You can also use online resources to track your spending.
As stated above, the average American will be retired for about 20 years. That’s a nice long time to be free of professional obligations, and for you, that number could be higher. You should be planning for retirement assuming you’ll have many happy years ahead of you, and also have money to pay for senior care, should the need arise.
If your employer offers a retirement savings contribution plan such as a 401(k), participate in it. Set up automatic deductions from your paycheck so you don’t even see the money. With lower income, your taxes will be lower, and the money you save toward retirement is tax-deferred.
Your employer may offer a traditional pension plan. If this is the case, you need to understand what your benefits are and what they’ll be worth in the future. Find out how your pension would change if you left the company. Learn about how your spouse’s pension plan benefits you.
If your employer doesn’t offer a 401(k), start an IRA (Individual Retirement Plan). You can contribute a certain amount of your income every year, and a higher amount if you’re over age 50. An IRA is a wise investment in your future, but there is more than one type to choose from. A professional financial planner is an expert in investment principles, rules and planning.
Don’t withdraw any of your retirement savings early. You’ll lose the advantage of compound interest. You’ll also have to pay a 10% early withdrawal penalty, further cutting into your savings. Planning for retirement properly means having the discipline to leave that money alone to grow, so you enjoy your retirement years, pay for senior care, and have the peace of mind of knowing you’re properly preparing for your financial future.