Planning for retirement doesn’t happen overnight. If you want to live more comfortably in the future, you have to think about retirement as early as your 20s. A financial advisor in Utah knows better than to make last-minute preparations for your retirement. So to make the process more manageable, we provided some steps to better plan for your retirement.
Step 1: Calculate how much you need
If you want to live comfortably on your post-retirement life, one rule of thumb is to have 70% of your annual pre-retirement income. That is if you have already paid your mortgage and you are in good health upon retirement. The amount you need also depends on how you want to live your life after retirement.
Step 2: Figure out how to meet your expenses
As a retiree, your primary source of income may come from your savings, pension, and Social Security. Compute how much you will be getting from these sources, and determine if it will be enough. If your projected retirement expenses from Step 1 don’t match with your projected income, then you need to add a few more dollars on your savings to make up for the shortfall.
Step 3: Work on specific areas prior to your retirement
If you’re already reaching 50, or if you only have 10 years left before your planned retirement schedule, consider focusing on the following areas to make post-retirement life easier.
- Know your healthcare options. Your retirement is also the time when healthcare becomes your biggest concern. A 65-year old couple will spend $11,000 on healthcare on average in their first year of retirement. That is according to the estimate of Fidelity Investments. But if you’re retiring early, take note that the most basic Medicare plan will be available for people over 65, so you have to consider how to fund your healthcare needs before you reach the said age.
- Pay high-interest debts. This is the time to clear off high-interest debts from loans or credit cards. Do this if you don’t want a huge chunk of your savings to go to debt payment when you’re already retired. As a general rule, pause your retirement savings if your debt has a 9% interest rate or higher. Focus your finances on paying your debt.
- Max out retirement accounts. If you max out your 401(k) or IRA at this time, you get unparalleled tax advantages. Now, you can choose to contribute a percentage of your pretax salary to your 401(k). Your pretax contribution does not only grow exponentially, but it can also reduce your taxable income by that amount.
- Review your investment risks. When you’re approaching your retirement age, it’s wise to assess your current investments. A good approach is to diversify your investments and go for the less risky ones.
Don’t wait until it’s too late to prepare for your retirement. Act early as now to enjoy the life you deserve after decades of your hard work. Determine how much you will need, save up for it, and maximize your options for a more comfortable post-retirement life.