Retirement Planning 101

How to Plan for Retirement

Retirement is a significant milestone that is undoubtedly meant to be a reward for many years. It means gaining complete control over your time, waking up naturally, and spending your days however you please. Sounds good, right?

However, statistics show that only about 40% percent of Americans have calculated how much they need to save for retirement. The statistics are demoralizing since the average American spends about 20 years in retirement. Therefore, setting aside some money for retirement should be a normal thought for the average person..

In this article, we will outline the steps, tips, and tricks to help you build, grow, and manage your money as you see retirement on the horizon.

What is Retirement Planning?

Retirement planning is envisioning and figuring out how much money you’ll need for retirement, and making viable plans to get you there. Retirement doesn’t necessarily denote an age number- it’s better to think of it as a financial figure.

Some of the critical questions you should ask yourself before planning for retirement include:

  • What do I want to do in retirement? Will you work part-time, volunteer, or travel?
  • When do I want to retire?
  • How much do I need to have saved by the time I retire?
  • How much do I need to invest every month to hit my retirement goal?
  • Which accounts should I be using for my retirement planning?
  • What about my health and medical coverage?

Retirement planning is extremely important because it gives you a chance to analyze your current expenses, future plans, and adjust your resources to accommodate your vision.

Here are some steps that will guarantee vibrancy in your retirement life.

Ensure You Are Diversified and Investing for Growth

Fear, anxiety and impulsiveness are the greatest enemies towards investing for your retirement. While it is understandable to shy away from the stock market, especially when you don’t have enough knowledge about it, the growth that stocks provide can be valuable.

You should consider maintaining a fair share of stocks, bonds, mutual funds, and other assets within your risk tolerance. An equally balanced portfolio will ensure you withstand any downsides should any of your investments fail. It is important that you are confident in your portfolio when it comes to risk tolerance and income potential. A well-versed portfolio can help you significantly during retirement years.

However, it is worth noting that  as much as diversification generates income, it does not provide an assurance for profit or cushion against a declining market

Take Full Advantage of Retirement Accounts

The best way to save for retirement is by using a retirement savings account. There are specific accounts that offer saving plans for retirement and give people incentives for saving in them. The IRAs and 401(k)s come with a lot of benefits attached to them.

They give you a tax break on your savings- either upfront or during withdrawal- and in between, your retirement savings are not taxed. Here are some tips to save on these accounts:

  • Get your free money– If your employer offers retirement benefits such as the 401 (k), then be sure to grab this opportunity and channel the funds directly to your account.
  • Contribute to an IRA- You can contribute a maximum of $6000 a year to the IRA, or $7000 if you are older than 50.
  • If you maximally contribute to the IRA, channel the rest of the money to the 401(k) or your employer’s plan and continue saving big.

Calculate Your Likely Retirement Income

The best way to calculate your required income is by weighing in likely income from predictable sources and employer pension. The rest of the retirement funds will come from your savings, investments, and wages you’ll earn.

The general rule of thumb to make your assets last and serve you the longest time possible, is spending approximately 4% of your portfolio each year in retirement. So, if you have $2 million, you could afford to spend $80,000 per year when you retire.

When social security funds and pensions are added to your savings, can they support you for the retirement you envision? If not, you could:

  • Postpone your retirement and work longer.
  • Cut on costs and work on a tight budget.
  • Defer your social security payments because each year you defer; your monthly benefits grow by an average of 8% till you’re 70. The longer you prevent yourself from touching the retirement nest egg, the longer your savings get to last.

Take Future Medical Costs into Consideration

If you retire by the age of 65 years, Medicare will likely take care of your routine health care costs. However, you need an extra amount of money to cover your non-routine health care costs, which are likely to increase as you get older.

You can also save yourself the hassles of enhanced medical care costs by buying premium insurance, which will take care of your health for the long term. The best action to take is by buying insurance now, because it will be much cheaper and insurances are less likely to reject you.

Downsize Your Debt

Consider accelerating your mortgage repayments and, if possible, clear them long before you retire. To curb credit card debt, try making purchases using cash for the major purchases you make.

Clearing existing debts and limiting your credit card usage ensures you maximize the amount of money you’ll save from your income while also rebuilding your credit.

Plan Where You Will Live

Where you decide to live after you retire will have a significant impact on your expense. For instance, if you decide to sell your house in a high-end location, and move to a low-tax paying state in a relatively cheap condo, you’ll save a lot of money. The decline in expenses will free cash that you can spend on other priorities.

You may also decide to stay in your home town or city and move to a financially manageable house. Whatever move you make, ensure that you are trying as much as possible to economize and factor that in to your retirement plan.

Work with a Reliable Financial Professional

Investing in your future isn’t a solo venture. You need a person that will help you plan wisely in an idea that will fit your future goals. Working with a financial professional you can trust is the best option to set yourself up for success.

Studies have shown that people who work with financial professionals receive an average increase of 1-3 % of their portfolio compared to people who don’t.

At Heritage Financial Credit Union, we work with you to create a reliable and realistic plan that fits your unique needs and help you understand your investment options. Call us at (845)-561-5607, and we will be more than willing to assist you.