Planning for your retirement may seem quite far-fetched considering the diverse immediate needs you may have. However, as clichéd as it is, financial advisors like VTA Publications’ CEO Jim Hunt, counsel that it is never too early to plan for retirement, Jim has said as much on Twitter. Furthermore, it does not have to be a tedious, boring, or painstaking process. Financial tools and advisors can help you plan your retirement from calculating the amount of money you will need, to finding a suitable investment mix.
- Determine Your Retirement Date
Determine your preferred retirement age, realistically, taking into account the increasing average lifespan in the country. Make sure your date is feasible and account for all your retirement years to ensure that you don’t outlive your savings.
- Estimate Your Expenses in Retirement
Apart from your daily living expenses, other retirement expenses may include finishing your mortgage loan, paying your kid’s college tuition, or traveling. Make sure to account for any possible revenues as well as inflation.
- Estimate the Savings Required
To get a fair estimate, match your estimated expenses to your projected income. Follow the four simple steps below:
- Add your estimated pension and social security payments taking into consideration your expected date of retirement.
- Subtract the figure above from your estimated retirement expenses.
- The difference you get is either your income shortfall or surplus. Use your savings to meet any shortfall.
- To estimate how much savings you will need to support your income shortfall, multiply the yearly amount by 25 using the conventional 4 percent spending rule. Use your retirement plans (IRA, Roth, 401 (K) plans) or any other accounts available to bridge this gap.
- Build Your Savings Plan
Once you have an actionable savings goal to achieve, your next step should be to come up with a solid savings plan. If you have an income shortfall in your retirement plan, you need to save to ensure your future financial security. Determine how many years you have left until you retire and divide the expected shortfall with this figure to give you your annual savings goal. Conversely, you may revise your retirement budget if your savings goal seems daunting.
The Essence of Pension Plans
We all need money after retirement, but unless you get an inheritance, win the lottery or accumulate assets and savings, then your pension will be your primary source of income. Pension funds are perhaps the biggest investments you will ever make because they secure your golden years.
Your best bet is investing in suitable long-term retirement plans such as insurance savings plans. Here, you set aside a regular sum of money that is invested on your behalf until you retire. It is then made available to you either as a lump sum or converted into monthly income.
Planning for retirement is necessary especially now that it is conceivable to live for over 20 years after retirement. Make sure that you regularly review your plan to account for any changes that may affect your goal. More importantly, you must be disciplined and persistent in your plan.