After decades of hard work, retirement is finally on the horizon. But with all the responsibilities, tasks and work deadlines, planning for retirement can easily fall off the list of all your priorities.
However, if you want to ensure your transition from working to enjoying retirement is smooth and worry-free, now is the time to take charge of your financial future.
When it’s less than 10 years until you exit the workforce, it’s critical to start planning, not just dreaming. So, take the time to think about how you envision spending your retirement days.
Are you planning to explore the world? Are there any creative passions you’d like to pursue? How much will this cost you? Try to be as specific as possible.
But retirement isn’t just about having fun. You should also factor in your health goals and long-term care.
After you have a clear understanding of what you want your retirement to look like, you should spend some time creating a realistic monthly budget. To do this, you should research how much you will need for housing, healthcare, food and hobbies, and consider inflation, too.
At the same time, you should start developing your retirement income plan. Write down all possible sources of income, like Social Security, annuity and all your retirement savings. If you plan on working a part-time job or receiving additional income from rental properties, make note of this, too.
Here is a convenient tool to use for estimating your Social Security benefits.
“Even if you are still 10 years from retirement, it is not too early to start developing a retirement income plan,” said Chris Urban, CFP®, RICP®, founder of Discovery Wealth Planning. “You should take the time to learn about the choices you have for generating income so that you can retire with comfort and confidence. Consider your sources of guaranteed income such as pensions and/or Social Security as well as investment and retirement accounts to draw from to support your lifestyle in retirement. Coming up with a plan that you are comfortable with, perhaps a few years even prior to retiring, will allow you to spend confidently once you are no longer earning a paycheck.”
As retirement approaches, you’ll have to shift how you allocate your assets. It’s an entirely different experience for your life and money. Some experts believe your investments should become more conservative as you age, while others note it’s critical to earn returns that enable you to keep up with inflation (or even better — get ahead!).
While there is no one-size-fits-all approach to asset allocation, there are ways you can find a strategy that works for your specific needs.
After determining how much money you’ll need and how much reliable income you will have from sources that aren’t your savings, you’ll have to calculate the difference between the two numbers. Carefully think about the costs you could forgo if necessary.
Money that you’ll need immediately should be kept in cash. Funds you’ll need within a couple of years can be held in bonds. Money that you won’t need soon can be used in stocks.
“Take a closer look at your household asset allocation across all of your retirement and investment accounts and begin to position the accounts appropriately based on your short, medium, and long-term goals,” Urban said. “Often, this results in some combination of safer assets such as cash, CDs, etc, as well as stocks, bonds, alternatives, real estate, and more.”
Debt payments can quickly drain your retirement savings. Even if you have an investment account that earns 8% annually, it won’t do you much good when you have credit card debt that costs 19%. For this reason, it’s important to pay off your high-interest debt as quickly as possible. The sooner you’re debt-free, the more income you can allocate to your retirement accounts.
Did you know that people 50 or older can contribute more to their retirement accounts? That’s right. Many employers offer 401(k) plans, which include catch-up contributions. This means you can stash away an extra $7,500 per year. For an IRA, you can contribute an additional $1,000 per year.
If you maximize these contributions, you’ll significantly boost your retirement nest egg. This means less stress about your financial health.
A 2021 survey by Fidelity Investments revealed that finances and retirement planning are difficult topics for many married couples. Surprisingly, some couples aren’t even on the same page regarding how they want to spend their retirement days. But if you want the transition to be successful, you’ll have to talk about this subject, as uncomfortable as it may be.
What will we do in retirement? What do we want to prioritize? What is it going to take for us to afford it? These are all important questions you should discuss together.
Ideally, you should plan for retirement when fresh out of college. Realistically? It’s not the way it always goes.
Still, even if you’ve struggled to create a hefty retirement fund, it’s not too late to begin. Ten years may seem far away, but time moves quickly. Remember that planning for retirement is a marathon, not a sprint. While you still have the chance, it’s important to set clear goals, maximize your retirement contributions, and pay off as much debt as possible.
