Everything You Need To Know To Plan For Retirement
Let’s face it: most of us would rather not discuss retirement planning. The concept of retirement might seem too far away to be relevant to some. Or, for others, retirement age could seem too close for comfort. Still others might be intimidated by the different financial terms and options involved in retirement planning. Whatever the reason, it often seems like the only people who genuinely want to talk about retirement planning are bank employees.
Are you procrastinating retirement planning? Then it might help to look at retirement planning from a different perspective. Retirement planning is simply planning for the future, which is a natural process. Squirrels, bears, and even some birds collect food every year to prepare for winter. Similarly, humans need to put aside some resources for later in life.
Keep reading to learn why retirement planning is so essential, which common mistakes to avoid, and how to plan for retirement in each decade of your life.
Why Retirement Planning is Important
Very few people dream of working a full-time job in their 80s. Whatever the reason, when a person stops working full time, they usually stop receiving a full-time income. Wise retirement planning can help you to avoid running out of money once you retire.
Additionally, there are many other benefits of retirement planning that might not be so obvious. For example, sound retirement planning can help you to:
- continue a pattern of charitable giving
- save enough resources to spoil your grandchildren
- stay financially independent, relieving your kids from a potential financial responsibility
- make better career and finance decisions, even at a young age
- experience real peace of mind and lower stress
Are you convinced yet? Before we get into the specifics of retirement planning, let’s talk about a few common mistakes to avoid.
Retirement Planning Mistakes to Avoid
Did you know that something as simple as changing a job could affect your future retirement? Many people who make common retirement planning mistakes don’t even realize the consequences of their actions. If you are thinking about retirement, here’s what not to do:
Don’t switch jobs without checking employer contributions. If your employer matches 401(k) or stock option contributions, make sure you learn about your vesting deadline. Vesting means that you don’t have full ownership of your employer’s matched funds until you have been employed for a certain number of years. So, switching jobs before reaching your vesting deadline could cost you.
Don’t neglect your savings. The more you save now, before retirement, the longer your money will be able to grow in compound interest. So, don’t waste your savings on short-term projects like remodeling your house when you’re already planning to move.
Don’t forget to plan. Before deciding how much to save, do some math. Create a detailed retirement plan that considers your estimated retirement age, retirement location, health, lifestyle, future medical costs, and expected lifespan. Update your plan regularly and get advice from a professional financial planner.
Don’t make ultra-risky investments. Unless you’re ready to spend a lot of time and effort learning the market, don’t invest in a self-directed IRA. It is not wise pay high fees for poor-performance, actively managed mutual funds. You don’t want to pour your hard-earned savings into bitcoin or other risky options.
Don’t cash out your savings early. If you choose to cash out on your retirement fund before 59 1/2, you won’t receive the full amount you saved. You will also lose future earnings by cashing out early.
Is It Too Late to Plan for Retirement?
If you’re worried about starting a late retirement plan, here’s some good news for you: it’s never too late to start planning for retirement. However, the longer you wait, the more limited your planning options will be. It’s best to start saving for retirement in your mid-20s. But, even starting at age 35 or later can provide excellent benefits to your future self. Here’s how.
How to Plan for Retirement
No matter what age you are, you can use these smart strategies to plan for your retirement.
In Your 30s
By the end of your 30s, you should aim to save about three times your annual salary. To accomplish that, you’ll need to save at least 15% of your gross salary every year. Saving 20% of your gross pay is even better.
Additionally, whether you’re using a workplace plan, like a 401(k), an IRA, or something else, don’t touch your retirement savings. When you switch jobs, you might have the option to cash out your retirement account. Don’t do it. If you do, you’ll get hit with penalties, taxes, and buyer’s remorse.
In Your 50s
Ideally, by the end of your 50s, you’ll have saved about eight times your annual salary. But saving money isn’t your only job. Use the time you have now to estimate your retirement income. Take advantage of catch-up contributions for 401(k) accounts and IRAs. Make sure you’re prepared for unexpected layoffs and downsizing. Most importantly, get help from a certified financial planner to make sure your plan is the best it can be.
In Your 60s
If you’re already age 60 or older, there’s still plenty you can do to plan for retirement. For example, plan to have enough income for a 30-year retirement. If possible, wait until age 70 to start collecting Social Security. Lastly, if your Social Security check and pension won’t cover your fixed expenses, consider setting up a single premium income annuity.
No matter what age you are, retirement planning doesn’t have to be scary. Do the math, research all your options, and enlist the help of financial professionals. Then, you’ll be able to sit back, relax, and enjoy your golden years with peace of mind.
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