Preparing for retirement is one of the most commonly overlooked steps toward achieving financial security. According to the United States Department of Labor, only 40% of people living in the country have planned for retirement.
This might seem counterintuitive, considering that the average American spends an average of 20 years in retirement. However, once you start planning your retirement you can understand why: There are many misconceptions about how retirement planning works.
While retirement planning is usually associated with something limited to those highly educated and with big wealth, this can’t be further from the truth. Nowadays, it is achievable for anyone who starts preparing for retirement early.
With life expectancy getting higher each year with the advancement of technology and science, retirement is something that everyone should consider. In this article, we will teach you some ways in which you can start preparing for retirement. After all, everyone deserves some rest after years of working hard!
What Is Retirement Planning?
Let’s start by defining what retirement planning is: It is the process by which you determine what your goals are in terms of retirement, as well as the actions necessary to achieve those goals.
By looking at the status of your finances and future cash flows, you will be able to create a game plan.
Analyzing your financial status involves looking at sources of income, expenses, passive assets, and much more. You will also need to take into account future expenses, liabilities, and life expectancy.
Unfortunately, the younger we are, the less we tend to think about financial security in the future… This is not great in the long term. The faster you start looking into this, the more time you will have to implement strategies to achieve your retirement goals.
While a lot of people consider that about $1M is needed to retire comfortably, most experts agree with the 80% rule. This means you will need to have enough savings when you retire so you can provide yourself an annual income that’s 80 percent of what you were making when getting a regular paycheck.
However, what you consider comfortably might vary depending on more factors than income. For this reason, you need to carefully consider how you want to live once you retire.
Why Should You Start Preparing for Retirement?
If you are one of the 40% of people who have not started thinking about retirement, you should start doing it now. While it might not seem like something relevant to your current situation, there are many reasons for you to start doing so.
In recent years it has become clearer that we humans are unable to predict what the future will bring. Market crashes, natural disasters, the COVID19 pandemic, and many other factors make it hard to predict what tomorrow will be like for us.
Preparing for retirement early will give you a higher chance of achieving your goals, providing you with financial security in the future and providing you with many other benefits. Let’s talk about some of these benefits!
Important Insights on Your Financial Situation
When you start preparing for retirement, you are not only preparing for the far future. By retirement planning, you will get an opportunity to review your current finances and learn about your expense habits.
These insights will help you to determine if there are expenses you can reduce or cut entirely, potential investment opportunities, and make other important choices in different areas of your life. It is not only about the future but also the today!
Being Ready for the Unexpected
When it comes to retiring, there are multiple aspects to consider. These aspects range from considering taxes to choosing the right retirement plan for you, as well as the possible drawbacks that can emerge. Being informed about your different options is essential to achieve your goals.
For example, a lot of people fail to consider that about 70% of all adults over 65 years old need long-term care. In the same way, failing to account for possible economic crises or family expenses, can result in postponing your goals. By doing careful planning, you will able to hedge for such situations, giving yourself some leeway.
Stress Less, Live More
Early planning will take away most of the stress that comes from planning when there is a clear deadline. The earlier you start preparing for retirement, the more time you will have to do it.
This will not only result in you experiencing less stress but also in a better mood, health, and time to enjoy life. Stressing out about the time when you should be relaxing is not something anyone should go through.
Make Better Life Decisions
We all know the struggle of thinking about our professional life, following a career, or choosing to take a vacation? You can make better decisions When you know what your financial goals in the long term are.
Like it or not, money is an essential part of modern life. Any decision you make will have an impact on your financial future… As such, knowing where and how you want to be when you retire is a great way to help you make important decisions.
It Shows You Care About Those You Love
Financial security when getting older is not only a way to secure your future but also of those close to you. While you certainly will be the most affected by not planning, family and friends will also have to deal with the consequences.
According to a report by the US Bureau of Labor Statistics, there are 40.4 unpaid caregivers of adults in the United States. Of those, 90% are caring for an aging relative. By having a retirement plan, you will be able to afford medical costs and any long-term care costs you might need.
How Can You Start Preparing for Retirement?
Preparing for retirement is a process that will vary depending on the stage of your life, financial situation, goals, and other factors. However, there are several steps that you can take no matter your current circumstances.
Retirement planning is a process that will take place during all stages of your life. For this reason, you will need to reevaluate it every now and then. After all, human beings are not static: Our goals and priorities change all the time!
Evaluate Your Financial Situation and Goals
You can’t start planning your financial future if you don’t know where you stand. As such, it is important to take a look at your current financial situation to understand what actions you need to take in the future.
Identifying sources of income and recurring expenses will allow you to create a saving program. Once you know how you can save, you can look at what your time horizon is. The longer you have, the easier it will be for you to reach your retirement goals.
Take Your Future Plans into Consideration
In addition to the previous tip, you should also consider your life plans. Are you thinking about buying a house in the future? Having kids? Starting a business?
While having financial security when older is important, you also want to make sure you enjoy life as much as possible. Depending on your calculations based on your current financial situation and time horizon, you will be able to take action to achieve your life goals.
If the result of this analysis is that the time you have and your financial situation are not enough to meet your goals, you will need to take action. Choosing a retirement program such as IRA or 401(k) might be an option, or you could also choose to invest by yourself.
Consider Your Options
There are many ways in which you can start saving/investing for retirement. Depending on your personal circumstances, you might have access to employer-sponsored retirement plans such as a 401(k) or 403(b),
These plans have the advantage of having your employer match your contribution. They also allow you to earn compound interest and earn a higher rate of return than a savings account. However, you will be subject to income tax once you withdraw your funds, and investment risks exist.
IRA and Roth IRA are also popular alternatives, especially among young adults. This will eliminate income tax when the money is retired but will also have a drawback: Just like with 401(k) plans, you will not be able to access the funds under normal circumstances until your retirement.
This drawback is one of the bigger reasons for many people to take control of their retirement funds. Applications like Acorns have made it easier than ever for anyone to start investing.
Acorns also offer a feature focused on automating savings for your retirement. With some easy taps, you will get access to a personalized portfolio to grow your contributions. Recurring contributions also means you will not need to worry about consistency.
Consider Getting Professional Advice
While the previous tips might be easy for those with a high degree of financial literacy, it won’t be for most of us. For this reason, getting professional advice might be a valuable investment for anyone preparing for retirement.
Financial advisors know all the ins and outs of the industry, which allows them to provide you with a better understanding of what to expect. While hiring a financial advisor used to be expensive and therefore inaccessible to most people, this is no longer the case.
Technological advancements have made services like Blooom increasingly popular over the years. Blooom will provide you with basic information on your accounts and retirement goals for free!
If you find out that you would like to get personalized assistance, which is what we are talking about, you can. By paying as low as $120 per year, you will get access to an advisor to help you with your retirement planning.
Knowing when to ask for help is a great way of preparing for retirement… Be it with your trusted financial advisor, a friend who is an expert on the topic, or services like Bloom.
Find Services Designed for Retirees
Services like health and life insurance tend to get more expensive and difficult to access as you grow up. By looking for service providers who offer benefits for seniors and retirees, you can start working toward a better financial future.
Providers like Health IQ offer rewards for health-conscious seniors, offering lower rates and other benefits. This makes it a great alternative for anyone preparing for retirement, as long as you are health-conscious or planning to be in the future.
Services specially designed for retirees are a great option to plan your financial goals, as you will be able to get specific information starting now. As we said, planning now is essential when preparing for retirement
Sources
https://www.bls.gov/news.release/elcare.nr0.htm
https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/top-10-ways-to-prepare-for-retirement.pdf
https://www.investopedia.com/terms/r/retirement-planning.asp
https://www.covenantwealthadvisors.com/post/9-reasons-why-retirement-planning-is-important
https://www.planadviser.com/exclusives/expect-unexpected-early-retirement/
https://www.msn.com/en-us/money/retirement/6-unexpected-events-that-could-drain-your-retirement-savings/ss-BB1c6TT1#image=2
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