Table of Contents
Plan for Your Retirement
You'll definitely not work for the rest of your life. As such, it's important to start planning for your retirement as soon as possible. Planning for your retirement should start with your retirement goals and how you're planning to meet these goals. By doing this, you'll know the best retirement accounts and how you're going to raise money to fund the type of lifestyle you want to lead in retirement.
The idea here is not to wait until it's too late. In other words, you shouldn't procrastinate and wait until the last years of your working years to start saving for your retirement. It's essential to start saving for retirement early while investing the money to help it grow. With that in mind, there are a few issues to look at when planning for your retirement.
Start by Defining Your Ideal Retirement
You'll be able to plan for your retirement properly if you can define your ideal retirement. How do you want to spend your retirement and what are you planning to do most in your retirement? Do you have plans to look for a part-time job or are you planning to retire completely? Are you looking to travel the world or run a business? Well, there are no one-size-fits-all answers to these questions.
The way you answer each question will depend on your situation and how you envision your retirement. For this reason, it's important to have a personalized vision on how you want to spend your retirement life. Your answers will, of course, revolve on your value and life goals.
Understand Your Timeline
Your current age and expected retirement age will affect your retirement plan. If you're in your 20s and expecting to retire by the age of 62, you'll have ample time to save for your golden years. Things might be urgent and quite different if you're aged 50 and looking to retire in the next ten years.
In essence, your current age and expected retirement age can determine the type of retirement strategy that you adopt. If you still have time between now and your retirement, you can choose to put your savings in riskier investments. If you're in your 20s, you still have 30-plus years until retirement so you can put your savings in riskier investments such as stock. Investing when you're young is essential if you do not want inflation to eat into your retirement savings. The idea here is that your returns should outperform inflation, especially if you want to maintain your purchasing power in your retirement.
If you're older, you should tailor your portfolio to preserve your savings and capital. If you have to invest, make sure that you invest in less volatile investments that can be a source of income such as bonds. Again, you should choose investment portfolios that may not be adversely affected by inflation.
Understanding your timeline is, therefore, of great importance when planning for your retirement. It will not only inform your investment strategy but will be the basis upon which your retirement plan is structured. You should include various timelines in your retirement plan and use them to decide the corresponding liquidity or financial needs. Again, it's also essential to rebalance your portfolio over time as your timeline changes.
Know Your Retirement Expenses
Knowing and having realistic retirement spending needs is of great importance in helping you come up with the ideal size of retirement savings. It's been generally said that many people will spend about 80% of what they spent in their working days. This is just an assumption, especially if you have debts and take into account unexpected medical expenses. You may also find yourself spending way above your budget in the first few years if you indulge in various activities such as traveling and shopping.
It's, therefore, important that you have a realistic estimate of what your spending needs could be in retirement. Take into account factors such as your withdrawal rate, medical needs, and many more. You should not overstate your expenses as you can live below your required standard. On the other hand, you should avoid understating your expenses as you can easily outlive your retirement savings. The most important thing is to come up with realistic retirement expenses.
Evaluate Your Investment Goals and Risk Tolerance
Having a proper portfolio that perfectly mitigates the risks such as inflation is probably one of the most important steps when planning for your retirement. You should ask yourself; what level of risk are you willing to take to meet your retirement goals? Whether you want to allocate a risk-free investment such as treasury bonds or want to get involved in risky portfolios such as stocks, you have to first assess your investment goals and how you can mitigate your risks.
Whether you're using a professional financial advisor (which is highly advisable) or doing it on your own, you have to ensure that you're completely comfortable with the risks that are involved in your portfolio.
Do Not Ignore Estate Planning
Another important thing to look at when planning your retirement is estate planning. While this may require various professionals such as lawyers, accountants, and financial advisers, it involves a lot of things that might be crucial to your loved ones when you're gone. Some of the most important parts of estate planning include life insurance coverage, trust, power of attorney, and tax planning.
Run an Initial Spending Plan
You've probably been planning for your retirement for decades now and think you are well set for it. But before jumping into retirement, you should take another important look at your budget and how you're planning to spend your money. It's vital to review your spending plan and see whether or not it's in tandem with your goals and income. This means that you'll have to evaluate your finances and account for all your income and expenses for the next few decades.
In your evaluation, you have to include unexpected challenges such as unforeseen medical costs. You essentially have to have a way of tracking all your expenses so that you can know where each dollar is going. It's, of course, important to keep in mind that your expenses may not go down in retirement as you'd have expected. As such, you should align these expenses with your available income. More importantly, do not forget to take into account rising inflations that may diminish your buying power in retirement.
Of course, we all do not want to outlive our savings in retirement and become a bother to other people as this can make your golden years quite hellish. With that in mind, it's important to avoid some mistakes that many older Americans make once they retire. In short, do not spend too much money in your early years of retirement traveling the world and shopping as you're most likely to run out of money.
Keep in mind that you'll be on a fixed budget, so it's essential to have a realistic budget based on your actual income. This process includes reviewing your pension scheme, Social Security, and any other source of income to know how much guaranteed income you'll be receiving. You should also adjust your expenses depending on inflation rates so that you can come up with a feasible expenditure.
See if You Have Enough Savings
As we've noted above, it's important to align your expenses with your savings in such a way that you do not outlive your savings and become a bother to others. It's important to review all your sources of income and determine if you have enough savings. Look at your pension schemes, IRAs, 401(k)s, Social Security, and all the guaranteed incomes from your investments over the years. Ask yourself; will my income be enough for my expenses or will I outlive my savings?
It may help to have a financial adviser in hand to help you answer this question appropriately. And if you do not have a financial adviser, it would make a lot of sense to look at all the strategies when it comes to withdrawing your income. For example, you can consider using the 4% rule to see whether you're on the right path. This 4% rule stipulates that if you withdraw and use 4% or less of your savings annually, you'll probably have your money lasting to the next 3 decades. This is not guaranteed and will, of course, depend on various things such as your age and risk tolerance. The 4% rule is, however, important in helping you determine whether or not your savings is right on track.
Pay Off Your Debts
Whether its taxes or just normal debts, living in retirement without having to worry about debts is of great significance. The best thing to do is to ensure that you settle all your tax obligations and debts before retiring. This is essential if you want to reduce your expenses in retirement. For example, you should pay off your mortgage before retiring. While this can be a very difficult thing to do, retiring mortgage-free is probably one of the best decisions you'll ever make in your life.
Carry Out Home Repairs and Improvements
Generally, retiring homeowners often look to downsize and sometimes consider moving to senior communities. To do this, they often look to sell their homes but this can be a long shot if the home is not in good condition. Honestly speaking, many homeowners, particularly those who have lived in their homes for two decades or more have ignored repairs and improvements in their homes. As such, their homes are in despair and require repairs and improvement before they can fetch some good money on the market. In short, it makes a lot of sense to upgrade your home before retiring, especially if you're looking to put it on the market and move to a retirement community.
Look at Future Health Care Costs
Old age comes with several health problems that may call for urgent medical attention. For this reason, having a reliable and affordable health insurance coverage should be a top priority if you're looking to retire. This is because health-related costs are likely to become a huge part of your expenses in retirement. The fact that today's senior citizens are likely to have longer lifespans and the rising costs of medical costs are just some of the few reasons why healthcare costs are expected to skyrocket in retirement. So whether you're on Medicare, it may not be enough to cater to your medical costs in retirement.
With that in mind, it's vital to cover your future medical costs by contributing to a Health Savings Account (HSA) when you're still employed. You can also consider other options such as a high-deductible health insurance plan. In essence, HSAs are becoming an even more crucial part of retirement planning as it's anticipated that medical costs are likely to rise in retirement.
HSAs are available to employees and are an ideal way of socking away funds that can be used both before and after retiring. The best thing about HSA funds is that you can move with them between employment. They can also avoid current taxes and be spent tax-free for eligible medical expenses.
That's not all; long-term insurance can be also an ideal way of addressing your medical worries in retirement. With long-term health care insurance, you'll be able to manage old age illnesses or disabilities without having to depend on other people.
When looking at the future health care costs, you should forget to factor in the fact that you need proper nutrition and exercise accordingly.
Choose Where You Want to Live and How You Want to Spend Your Life
While planning for your retirement and having your finances in order are of great significance in retirement, you have to also put a lot of emphasis on your retirement relocation. Well, this is of great importance in determining the overall life that you want to lead, your cost of living, and general satisfaction. So whether you're downsizing your home or just looking to change your location, you should seriously think about where you want to spend your retirement years.
When choosing the right place to retire, you should look at various factors such as the environment, safety, accessibility, the type of health care, affordability of housing, and many more. And if you've decided to move to another location, you should factor in the costs of moving in your retirement budget.
You should also take into account how you want to spend your days in retirement. The best thing to do is to start thinking about your retirement before the actual retirement. If you want to indulge in a hobby, work part-time, or develop a new skill, this might be the right time to consider how you want to spend your post-career days.
Although a huge percentage of older Americans dream of vacationing and traveling the world in retirement, it's always advisable that you work part-time or even run a business so that you can generate supplemental income. Getting involved in various things in retirement will mean that there's less pressure on your savings and it's an excellent way of eradicating boredom while remaining active.
Choose an Appropriate Lifestyle
It's important to create a system of staying engaged so that you do not get bored. Whether you've been dreaming of volunteering or traveling the world, the most important thing is to remain active and healthy without overstretching your savings and income.
If you have a partner, you should discuss your dreams, plans, and fears that may revolve around retiring. You have to communicate and agree on how you're going to spend your retirement. Whether it is about eating out, helping with various chores around the house, or babysitting grandchildren, it's essential to be on the same page with your spouse.
You shouldn't also spend each minute of your time thinking about the day you'll retire. Instead, work towards achieving what you want in your retirement. More importantly, choose the right team to help you with planning for your retirement. You can seek the services of legal experts and financial advisers to help you navigate some of the most challenging decisions that come with planning for retirement.