There are many steps to retirement planning. The ultimate goal is to have enough money so that you can quit your job and do what you want. This retirement planning guide will help you reach that goal.
Step 1: Decide When You Should Start Retirement Planning
When is the best time to start retirement planning? Simply put, right now. In three words, now. Your money will grow faster if you plan early.
It’s never too late for retirement planning to begin. Don’t let it feel like you’ve left the docket, even if retirement is not something you’re thinking about. You will appreciate every dollar that you save now. Strategically invest, and you won’t have to play catch-up for too long.
Step 2: Determine How Much Money Is Needed To Retire.
Your current income, expenses, and your expectations of how those expenses will change in retirement all affect the amount of money that you need to retire.
- It is common to replace 70%- 90% of your pre-retirement income with savings or Social Security.
- A retiree earning an average of $63,000 per annum before retiring should expect to have to pay $44,000-$57,000 annually in retirement.
Step 3: Prioritize Your Financial Goals
Your only goal in saving is likely to be retirement. Many people have other financial goals, like paying off student loans or credit card debts or creating an emergency fund.
You should save for retirement while building an emergency fund. This is especially true if your employer has a retirement plan that matches some of your contributions.
Step 4: Select The Best Retirement Plan
Planning for retirement is about deciding how much and where to save it.
- Consider starting a 401k or another employer-sponsored retirement plan that has matching funds.
- You can open your own retirement account if you don’t have one through your workplace.
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Although there isn’t a single best retirement plan out there, it is possible to find the best combination of retirement accounts or plans. The best plans offer tax benefits and, if possible, additional savings incentives such as matching contributions. A 401(k), with an employer match, is often the best place to begin for many people.
An IRA is a plan that you can use if you don’t have a company plan or one that you are offered doesn’t include a match. This plan can be opened at an online broker. An IRA is not a consolation prize.
These are seven retirement plans that may work for you. You can click the links to learn more about each type of retirement plan.
- 401 (k)
- Roth IRA
- Traditional IRA
- Self-directed IRA
- Simple IRA
- SEP IRA
- Solo 401 (k)
Step 5: Choose Your Retirement Investments
Retirement accounts allow you to access a variety of investments including stocks, bonds, and mutual funds. The right mix of investments will depend on the time you have before you need it and your tolerance for risk.
- The idea is to start investing aggressively early in life and gradually reduce your investments to a more conservative mix as you get older. Because you have plenty of time to invest early in life, you can weather market fluctuations. A few bad years will not ruin your savings and your nest egg should reap the benefits of the stock market’s long-term history of growth. As you move through life, you will be investing for retirement as you become more educated, have more children, and experience stock market fluctuations.
- You don’t have to be there for your investments. You can manage your retirement savings by yourself with a few low-cost mutual funds. For those who need professional guidance, a financial adviser is available.
