According to a 2021 report by the Transamerica Center For Retirement Studies, 73% of workers are confident, 24% are very confident, and 49% somewhat confident that they can live comfortably in retirement. Planning for retirement is vital because it ensures you have enough money to enjoy a comfortable lifestyle in your golden years.
There’s no right time to start planning for retirement; however, if you start early, you’ll be in a better position to have more resources in the future. In this discussion, we explore five steps to achieving retirement security at any stage of your life. Keep reading;
1) Set A Realistic Target
According to a Bankrate study, approximately 55% of Americans acknowledge that they’re not saving for retirement. Most people, especially the young who begin working in their early 20s, may view retirement savings as a hopeless and unachievable goal in the short term. It’s understandable because it’s a period when you are actively working to fulfill your current financial goals.
Retirement may seem far-fetched if you’re paying your federal student loan and servicing a newly acquired mortgage or auto loan. But did you know that setting realistic targets early is the key to achieving retirement security? You wouldn’t want to run around in 8-hour shifts or do door dash deliveries at 60 years old simply because your income can’t sustain your lifestyle.
Remember, life can be unforgiving in old age, especially when lifestyle diseases start popping up and you need insurance and drugs to stay healthy. Furthermore, the skills you had 20 years back may not be practical anymore as the world keeps changing and new technology takes center stage.
There is no golden rule on how much you should save for retirement. However, experts recommend allocating at least 10-15% of our income to a retirement fund.
If you’re in your 40s and still need to keep up with your savings goal, you can increase the amount you save every month to catch up. Hopefully, at this time, you have already completed paying your student loan, are nearing mortgage payment completion, and have few household responsibilities.
2) Work With A Financial Planner
It’s a good idea to set realistic goals, and it starts by seeking answers to the following questions;
- When do you want to retire?
- How much will you be spending after retirement?
- How much will you need to live comfortably?
You can use a retirement savings calculator and work with an estimated figure to get a good idea of how much you need to save for retirement. Usually, these tools are found online; you only need to download or use your browser to get the estimates.
Additionally, a financial planner can help you establish a workable retirement goal or evaluate the one you already have. They may suggest you make adjustments depending on your current or future income. For example, you could save more or add retirement years to your set.
3) Choose a Retirement Savings Account
After establishing your savings goal, the next step is to figure out a retirement savings scheme that will match your financial goals.
The 401(k) is a good option if you’re already employed because your employer likely matches a savings percentage. Besides, it’s tax-sheltered savings, and after many years, your compounded earnings may be more than your contributions. Therefore your 401(k) account has the potential to increase over time.
Another option is to consider the Individual retirement account (IRA), a type of investment account that offers tax benefits to help save for retirement. There are two types of IRAs, traditional IRAs and Roth IRAs. With a traditional IRA, your savings are not taxed until you withdraw. With a Roth IRA, you contribute with after-tax dollars, which means your withdrawals during retirement are typically tax-free.
Whole life insurance policies offer a death benefit and cash value component, which can make them an attractive tool for financial planning. The cash value of a whole life insurance plan grows tax-deferred, meaning you are exempted from paying any taxes on investment gains. The good thing is it can help your money grow faster than it would in a taxable account.
Additionally, you can access your policy’s cash value through loan facilities and withdrawals, allowing flexibility in how you use your savings. You can talk to a financial expert who can help you decide when to get life insurance.
4) Evaluate Your Physical and Mental Well-being
Many Americans spend their accumulated wealth in their golden years, yet many struggle to juggle the little they have and care for their health. The graying population needs to eat a balanced diet, stay active, make healthy food choices, and manage overall health care.
When deciding on saving for your retirement, your state of health should be a key consideration. Research shows that as our bodies age, there’s a high possibility of living with risk factors, including high cholesterol and high blood pressure, which can lead to heart disease and stroke. Other common health concerns for seniors include respiratory diseases, Alzheimer, Osteoporosis, and diabetes.
Having a safety net can cover your health insurance in the future. Even though Medicare, the federal health insurance for individuals above 65 years, may come in handy, it may not be sufficient to cover all your health costs. Often, you may need to bump up your coverage with an additional plan.
5) Borrow Wisely
People borrow for many reasons, including paying for emergencies and acquiring assets such as a house and a vehicle. However, it’s important to balance what you owe and your savings. Debt can be overwhelming because it can interfere with your financial goal of saving for retirement. However, you need a winning strategy to handle the debt and save simultaneously.
First, you can create an emergency fund, so you don’t have to run to the bank whenever you suddenly fall ill, lose your job, or pay for urgent car repairs and renovations. Next, you must focus on debt repayment by not borrowing above the 30% credit utilization rule.
Also, list all your debts and start paying off the smallest to the largest, which can satisfy you that you’re doing something about debt management. Finally, find a balance that works for you and start building your retirement savings early enough.
Achieving retirement security at any stage of your life can have tremendous implications for your future. Planning, choosing a retirement scheme, paying your debts, and being mindful of your health are vital steps in achieving your retirement financial goals. Working with an expert means they better understand a wide range of saving options to maximize your retirement income. As the adage goes, make hay while the sun shines!
George Dardenn is a sports education graduate who developed an interest for writing when he suffered an injury and needed to rest for a while. That challenge didn’t stop him in his passion and instead thought of another way of sharing about what he knows about sports and wellness.