Men and women rarely know how to go about planning their retirement. They may lack information on one step or find themselves completely lost on how to start the process. Retirement planning involves five steps. A person must know when to save for retirement, determine how much money they will need to retire and live the lifestyle they desire, set their priorities, choose which accounts to put their money in, and select investments.
Experts recommend people invest aggressively when they are young. As they get older, they should move to a more conservative mix of investments. This move protects their money if one or more investments take a downturn. Men and women may choose to manage their retirement savings or turn this task over to a professional. King of Kash recognizes many people struggle to save for retirement and provides the following information on the five steps of retirement planning to help these men and women.
When Can a Person Retire?
Individuals may retire at any time. When they do so depend on whether they have the funds to replace the income they have been bringing in. People in the U.S. cannot begin drawing Social Security benefits until they turn 62, although Congress has discussed raising this age. However, individuals must understand that the earlier a person files, the less they draw in benefits.
Individuals born in 1960 or later find they cannot draw full social security benefits until they turn 67. Nevertheless, if they hold off on claiming their benefits until the age of 70, they increase the amount they get each month. Some people choose to leave the workforce early while others continue working after they can draw Social Security. Many men and women choose to work part-time rather than retiring outright. This is a matter of choice. However, planning is key to the retirement you desire.
When Should You Start Planning Your Retirement?
People need to start planning their retirement in their 20s. However, it never hurts to begin this process as soon as you get your first job. By starting early, you have more time to allow your money to grow. Don’t despair if your 20s have come and gone. Begin saving right away. The more you put away now, the more you will have later to live the life you desire. If you put your money in the right investments, you’ll find you can catch up quicker than you imagined.
Determine How Much You Will Need When You Retire
The amount a person will need to retire comfortably depends on their income and expenses. One thing people often overlook when calculating this amount is the fact that their expenses will likely change as they get older. Experts recommend a person should plan to replace at least 70 percent of their annual income before retirement with their savings and social security. However, it is helpful to replace 90 percent of this income if possible.
Prioritize Financial Goals
Many people have financial goals outside of retirement. They need to be factored into the process when calculating your retirement needs. For example, one person may work to build an emergency fund so they don’t need to use a credit card when an unexpected situation arises. Another person may find they need to pay down credit card debt. Try to work on all financial goals at the same time.
This is particularly important when an employer matches contributions to your retirement plan. This allows you to build your retirement faster without taking additional funds out of your own pocket.
Select the Right Retirement Plan
People may know how much they must save but find they don’t know where to put the funds they are accumulating. A 401(k) remains the best option for individuals who have access to this or another employer retirement plan. If this option isn’t offered where you work, open a personal retirement account. Look for a plan that offers tax advantages and a savings incentive, much like the matching contributions offered by many employers.
Once these plans are in place, max them out each year. Additional funds may be placed in an IRA. Work with an online broker or account provider to establish this account. Options to consider include the 401(k), a Roth IRA, a traditional IRA, or a simple IRA. Speak with a financial advisor to learn about all options and which may be right for your situation.
Individuals find they gain access to a variety of investments when they open a retirement account. Some people choose to invest in stocks and bonds while others prefer mutual funds. Finding the right combination of investments requires knowing how much time you have to build the fund before the money is needed. In addition, the investor must know the level of risk they feel comfortable with when it comes to their retirement funds.
People should invest aggressively when they are young. If an investment fails and the funds are lost, they have time to rebuild the fund before retirement. As your retirement age gets closer, move the investments to conservative options. Market fluctuations won’t be of much concern when you become more cautious with your investing.
One thing many investors do that they shouldn’t is put their money into investments and never reevaluate their investment strategy. Needs change as your situation changes. For example, a person needs to rethink their investment strategy when they get married or have children. These major life changes impact the funds they will need at retirement. Take time to reevaluate your investment strategy yearly so you don’t unintentionally fall behind in saving for your later years.
Don’t monitor your investments on a daily basis. The stock market experiences ups and downs. When you put retirement funds into the market, do so with the intention of allowing the funds to sit for the long term. By only monitoring the funds monthly, you won’t panic when you see a major dip or choose to sell when the market has a significant upturn. There’s less temptation to deviate from the plan you created when you only check the accounts monthly. Stay on the path you set and you’ll find you are prepared for retirement when the time comes for you to stop working and live life to the fullest.