Are you considering retiring in a few years? If so, you will need to create and follow a solid retirement plan.
Getting ready for retirement usually requires you to have consistent savings and fruitful investments. A retirement plan can help you gather and maintain your finances that you can bank on after you leave the workforce.
If you don’t know where to start with retirement planning or what to expect going forward, keep reading. This article highlights the essentials of retirement planning and how you can efficiently build and manage your retirement money.
When to Start Retirement Planning?
Whether you plan to retire a few years or a few decades from now, the earlier you start planning, the more time your money has to grow. From the beginning of your career, you can try and set aside a portion of your paycheck for your retirement fund.
In the years leading up to retirement, regularly contribute to that fund so that when you finally retire, you have a financial cushion to fall back on. If your employer provides a 401(k) plan, save at least enough to get the maximum possible 401(k) match.
If you don’t start retirement planning right away, don’t worry. It’s never too late to start. Any amount of money you can manage to save from now until retirement is beneficial in the long run.
How Much Should You Save?
This question can be best answered by considering your current financial situation. Take stock of your annual income and expenses and deduce how much you’d need to save to maintain your present lifestyle after retirement. Also, consider the ways in which your current expenses can change around the time of retirement.
For example, if you’re a young parent in their 20s, you will have to save a portion of your income to cater to your child’s educational, medical, and emotional needs. So, you cannot set aside too much money for your future plans.
However, when your children become adults, and you get closer to retirement, you no longer have to worry about saving money for their needs. You can invest more of your income in your retirement then.
Ideally, saving 70% to 90% of your annual pre-retirement income can help you live comfortably during retirement.
Select your retirement investments
Retirement accounts provide access to a range of investments, including stocks, bonds, and mutual funds. Determining the right mix of investments depends on how long you have until you need the money and how comfortable you are with risk.
Generally, the idea is to invest aggressively when you’re young, and then slowly dial back to a more conservative mix of investments as you approach retirement age. That’s because early on you have a lot of time for your money to weather market fluctuations — a few bad years won’t ruin you, and your nest egg should benefit greatly from the stock market’s history of long-term growth. Investing for retirement evolves alongside you as you change jobs, add to your family tree, endure stock market ups and downs and get closer to your retirement due date.
Your investments don’t necessarily require constant babysitting. If you want to manage your retirement savings on your own, you can do it with just a handful of low-cost mutual funds. Those who prefer professional guidance can hire a financial advisor.
Follow a feasible retirement plan that works best for you to ensure a comfortable retirement for yourself and/or your dependents.