Most of us will be familiar with the phrase, “Failure to prepare is preparing to fail.” This perfectly sums up retirement planning. In a time where 78 percent of Americans are woefully unprepared for their retirement, early planning may be the key action that helps you avoid becoming one of the statistics. Planning for the future is often synonymous with those nearing the end of their working career as they anticipate sizeable changes. Yet, if you opted to be more proactive in our retirement plans earlier on in our life, you are giving yourself the best chance of achieving those dreams you may have, and also boosting the likelihood of being adequately prepared. It’s simple: the earlier you plan for your retirement, the more time you have to make those plans become a reality (and possibly exceed your initial goals). Contrary to what many believe, retirement planning centers on more just establishing and building your financial investments or savings. It is about future proofing your finances, establishing security for you and your loved ones and overall, preparing your life for what is to come.
What Does A Retirement Plan Entail Exactly?
When it comes to establishing a retirement plan, there are several misconceptions about what exactly the process entails. One of those misconceptions? Retirement planning is a one-off action. In fact, planning for your retirement is an ongoing process and should be regularly reviewed from time to time, to gauge your progress and reassess whether your goals have changed. This is particularly highlighted in the changing costs of retirement that seniors are experiencing in society today and the guessing game that is life expectancy.
Guessing your life expectancy is in fact, one of the starting blocks when beginning your retirement planning. In addition to your current savings and assets owned, the length of time you are looking to provide for will help you gauge what your end goals will look like.
This also brings us to the second misconception. It is often assumed that planning for retirement is mostly about establishing investments. While retirement planning does largely center on your savings and income streams post-career, it also entails providing for medical emergencies, providing for debt obligations and even taking steps to amend your lifestyle to be more suitable to the new dynamics that comes with leaving the workforce. It is important to also establish that retiring today no longer means leaving the workforce completely. More seniors are choosing to become entrepreneurs, volunteer or embrace freelancing as a part of boosting their income and also as a retirement goal. Therefore, this aspect has also become a part of new age retirement plans.
Getting Started By Creating Savings Security
A Gallup survey showed that 43 percent of adults aged 50 to 64 expect to rely solely on their Social Security Benefits during their retirement while a staggering 21 percent of Americans have no retirement savings at all. This places many people in a precarious position and one that can rapidly lead to a debt spiral. One of the first things you can do immediately is to begin saving for your retirement goals once you have mapped out what those goals are and what they will cost. It is estimated that the average retiree spends $3,800 per month or $45,756 annually. While this is a great starting point, it is best to personalize your savings goals. Look at your outgoings currently and get in the habit of budgeting. With the help of spreadsheets and mobile friendly budgeting apps, you can sync all of your spendings and see where you can trim money. Generally, it is recommended that you begin putting away 15-20 percent of your income into savings or investments including any workplace retirement plans.
Diversify Your Portfolio And Make It Work For You
Our income changes with retirement and therefore making arrangements to supplement the loss of income that comes with retirement is a wise move. It is also great to do so earlier on in life since it gives you more time to implement them and iron out any kinks. Many people opt for stocks and share investments which can be conveniently done in the comfort of their homes thanks to the recent invention of investment Robo advisors or with the help of a financial planner if preferred. Another income stream to include in your portfolio is real estate. Thanks to advancing financing options, you do not necessarily have to purchase buy to let properties on your own but can make use of real estate funds and platforms. Finally, business income such as establishing a small business can provide a useful income stream in retirement. Take the time to maximize your 401k and Roth IRA as well, starting early. This also applies to the self-employed starting their retirement savings plan in lieu of an employer-sponsored plan. The more years you are able to contribute, the more you will be able to put away.
Cover Your Bases, Provide For The Unknown
For the retired, healthcare has been one of the most steadily increasing spending categories. It is estimated that healthcare in retirement will cost a couple $280,000, not including any long term care costs. While there is national and state insurance such as Medicare that covers some of the healthcare expenses in later life, there still remains an increasing gap between consumers’ savings and their coverage. In this case, securing medical and life insurance (including coverage for long term illness) proves to be a prudent move.
For those aged 65 and over, insurance premiums can cost over $4,000 each year and increases with age. One good tip is to create dedicated savings pots for events such as upcoming insurance premiums and to secure coverage earlier rather than later. By saving throughout the year, you guarantee continued coverage and avoid the budgetary squeeze of premiums. In addition, lump sum payments tend to come with discounts, making it more budget friendly.
There is a lot that goes into planning for retirement, and what is important to note is that that process never stops. While there is always some degree of uncertainty attached to estimated what life after retiring may look like, there is one thing that is certain: you can never start planning for the future too early.