Saving for retirement is a wise financial strategy. Retirement planning allows you to envision how your life will be and prepare accordingly. Whether you start 25 or later, you have the potential to grow your nest egg for a stable future. Here are nine tips to guide you through the process of retirement planning.
1. Contribute to Your Employer’s Retirement Plan
If your employer offers the traditional 401(K) and you’re eligible, sign up. A recent study shows that eight out of every ten employees believe their 401(K) will be their biggest source of income in retirement.
2. Create an IRA Account
You may consider establishing an individual Retirement Account (IRA) for your savings plan. An IRA account offers an easy way to manage your investment portfolio. You may have two options available; a traditional IRA or the Roth IRA. Contributions, tax deductions, and withdrawals will vary depending on the account you choose.
3. Start Early
With retirement planning, it’s crucial to understand your time horizon. The earlier you start saving and investing, the better off you’ll be. It allows you to tap into the magic of compounding. The sooner you start saving, the more time your money has to multiply.
4. Set a Goal
Financial independence in retirement takes a lot of time, commitment, and money. Create an elaborate investment policy statement that will guide you in achieving your targets. The policy outlines your investment strategies, goal set, and the framework needed to actualize the plan.
5. Invest In Your Health
80% of current retirees say that health is an essential ingredient for a happy retirement. Working on your health can be rewarding by staying physically and mentally fit. A study by Merrill Lynch shows Americans above 50 years cited healthcare costs as their primary concern in retirement. As you approach your retirement age, start to explore how you will go about health insurance in retirement.
6. Save, Save, Save
The US Department of Labor reports that 20% of Americans don’t save any part of their annual income. Additionally, 30% of private industry workers with access to a defined contribution plan did not contribute. Rein in your spending by creating a budget and sticking to it.
7. Know Your Retirement Needs
Experts argue that you may require 70-90% of your pre-retirement income to maintain your current standard of living during your old age. You may need to consult your spouse about your retirement plans. Get out the retirement calculator and get into the details of your projections.
8. Avoid Touching Your Retirement Savings
You must become disciplined about your retirement savings plan. If you withdraw your money now, you will lose all your principal and interest accrued over the years. Besides, you may lose other tax benefits, not mentioning the stiff penalty for early termination.
9. Find a Certified Financial Planner
Research shows that 77% of Americans are incredibly confident about their investment choice after consulting a financial advisor. Seeking advice from certified financial planners may boost your average yearly return by over 3%.
Retirement planning allows you to create a robust investment portfolio for you to benefit from in your old age. If you are just starting employment, focus more on savings and investments. Remember, it’s never too early or too late to start planning for retirement.