People are living longer, and the cost of living is continuing to rise. This makes the prospect of having a stress-free and comfortable retirement more and more daunting. People will spend decades in retirement, and it is more vital now than ever before, for people to take the right steps to prepare financially. Here are some tips:
Read up On the Literature and Meet with A Financial Advisor
Understanding the pitfalls of retirement and speaking with an expert are two of the most generous things you can do for yourself. A retirement book will give you great general guidelines and timelines on how to approach the retirement planning process. A financial advisor will have years of expertise to help you set realistic goals and get the most out of your money through smart investing. They can field your questions about taxes, budgets, investments, and more.
Make a Budget
Experts say that Americans still need 90-100% of their annual pre-retirement budget to live comfortably post-retirement. Think about the lifestyle you’re accustomed to and what you’re prepared to change in order to accommodate retirement.
There’s a lot that goes into creating a comprehensive retirement budget. First off, give yourself a large, transitionary cushion as you move from working into retirement. Have at least three months of daily living expenses saved up in case of pension or social security delays. You can also use online calculators to predict how long your lump sum of money will last, which can be tremendously helpful. Social security calculators are also a fantastic resource.
Anticipate Your Needs (and Wants)
A huge part of successful financial planning for retirement is grounded in understanding your wants and needs for the coming years. Take inventory of significant expenditures and goals, and discuss future needs that you may have in 5, 10, or 20 years from now with your spouse and family. Do you want to travel? Do you want to fund your child’s higher education or wedding? Do you want to move to Florida, or buy a second home?
Educate Yourself on Investment Possibilities and Make a Plan
Generally speaking, the older you are, the more your investment strategy should be rooted in generating income and minimizing potential losses. Stocks are great to invest in when you’re young since they have higher returns over 10+ year time frames, but are much more volatile than something like bonds. Look at your finances holistically and make strategic investment moves.
Understand Taxes in Retirement
Ensure that you anticipate taxes in your budgeting. Unfortunately, retirees can be subject to some pretty hefty taxes, just like the rest of us, and too many of them don’t take that into account when developing a budget. Consider where you live, your pension, home sales, and investment income when calculating potential annual taxes.
The earlier you can get on top of your retirement planning, the better. Give yourself as many cushions, safety nets, and resources as possible, and enjoy your golden years.