Did you know that only about 40% percent of Americans have calculated how much they need to save for retirement? The statistics are low, especially considering the average American spends about 20 years in retirement. If you’d like retirement to be a part of your future plan, then continue reading for some tips to help build, grow, and manage your money.
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 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 of retirement.
Here are some steps that will help you 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.
- Take Full Advantage of Retirement Accounts
A great 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, but take the time to learn more about their unique benefits.
They give you a tax benefit 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:
- Enroll in a 401(k) – If your employer offers retirement benefits such as the 401 (k), then take this opportunity and channel the funds directly to your account.
- Contribute to an IRA- You can contribute a maximum of $6,000 a year to an IRA, or $7,000 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.
- 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 help 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% until 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 could buy insurance now, because it will be much cheaper and insurances are less likely to reject you. Factoring in medical cost into retirement is essential to try to get an accurate picture of how much you need to save for retirement.
- 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. For more tips on how to manage debt, see our 7 Way to Manage Debt article.
- 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 and downsize in a lower taxable area, you’ll save 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 factoring that in to your retirement plan.
- Work with a Reliable Financial Professional
Investing in your future isn’t a solo venture. 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. Our financial professionals have helped many members and provide a personal touch. Call us at (845)-561-5607 about our investment services to help you maximize your retirement savings.