For many people, their ambition is to enjoy a fulfilling and rewarding career that enables them to develop both personally and professionally through meeting others and enjoying new experiences. When that career comes to an end, they will have more free time to live in whatever way they choose, but they will lose their regular income stream. Without proper planning and preparation, this can make what should be a time of joy and exploration very stressful and limiting. This article outlines five key steps to follow when planning your retirement to ensure you can maintain a high quality of life.
- Start planning as early as possible
Unfortunately, many people do not give much thought to their retirement until they can see it on the horizon. To give yourself the best financial status in your retirement, you should start planning as early as possible. The earlier you start investing and saving, the longer you are giving your money to grow. Of course, it’s never too late in your career to start planning for retirement, especially if you make smart decisions with your cash.
- Work out how much money you will need in retirement
The next step is to work out how much money you will need to ensure that you can cover your living expenses in retirement. Think about whether your expenditure is likely to change in retirement. For example, you may have paid off your mortgage by the time you retire, or you might be planning to move to a new home. You should aim to fund 70-90% of your pre-retirement income through savings, investments, and your Social Security.
- Work towards financial goals
In addition to saving money for your retirement, you should consider other financial goals that would be helpful to achieve. For example, clearing student loans or credit card debts. It is also advisable to build up an emergency fund, i.e., a pot of money that would cover a few months of living expenses if you were to lose your job or become seriously ill.
- Consider your investment options
Investing your money can effectively generate a higher retirement income, but it should be done with caution. Younger people may want to invest in riskier ways as they will have longer to recover losses due to market fluctuations, whereas people close to the age of retirement may want to be more conservative. It is often best to invest in a range of stocks and bonds to spread your risk. Annuities can also be helpful as, once they have accumulated, they are paid out over a period of time. Click to find out how annuities work.
- Make a savings plan
It is important to think about how you will save for retirement as there are several options. The most common saving plan is a 401(k) or a similar plan where your employer matches contributions. Other retirement plans are available if you do not have a 401(k) or you want to save in a separate account at the same time, including a traditional IRA, a self-directed IRA, a simple IRA, or SEP IRA.