Thinking about retirement can be scary, especially if you haven’t started planning for it or looking through life insurance guides. And although the temptation to procrastinate your retirement planning is mighty, the reality is that many of us will need to retire at some point in our lives.
Fortunately, there are tips and tricks you can employ to ease the burden of retirement fears and give yourself a comfortable retirement: If you start planning now and invest wisely, you could be much better off in just 20 years’ time.
To help you get started on the right track, here’s some expert advice about investing and planning ahead for retirement.
How can I start saving money for retirement?
Start saving for retirement by putting aside a percentage of your income each month into a tax-advantaged investment account, like a Roth IRA. Exactly how much money you set aside will be most accurately determined by a financial advisor, but it’s best to at least put something aside each month even if you’re not confident in the amount.
Inflation will erode the purchasing power of your savings if you simply keep them in savings accounts, so you’ll need to increase your retirement savings every year to keep up with rising prices.
Your retirement goals will determine how much you need to save. If you want to maintain your current lifestyle in retirement, you’ll need to replace a significant portion of your annual income. If you’re willing to make some lifestyle changes, you can get by with a smaller nest egg.
Preparing for retirement is a marathon, not a sprint. You don’t have to (and shouldn’t) try to save everything overnight. Start with a realistic goal and increase your savings gradually over time. If you plan ahead and make consistent progress, you’ll be in good shape when retirement rolls around.
Types of Retirement Investment Accounts
There are many different types of investment accounts that you can use to guide you towards a comfortable retirement, and the best one for you will depend on your individual circumstances.
Some common investment accounts include Roth IRAs, traditional IRAs, and 401(k)s.
Each of these account types has its own set of rules and regulations, so it’s important to do your research and consult with a financial advisor before making any retirement decisions.
Generally speaking, retirement savings should be kept in a tax-advantaged account like an IRA or 401(k) in order to maximize your after-tax income in retirement.
However, if you are in a high tax bracket now and expect to be in a lower tax bracket during retirement, it may make more sense to keep your retirement savings in a non-tax-advantaged account: Distributions from traditional IRA accounts are taxed as ordinary income.
Therefore, if you’re in a lower tax bracket when you retire, you’ll end up paying less in taxes overall. Additionally, if you’re 50 or older, you can make catch-up contributions to your retirement account which may help you live more comfortably in the latter years of your retirement.
Know Your Risk Tolerance
Risk tolerance is the degree of variability in investment returns that an investor is willing to experience. Risk-averse investors prefer stability and predictable returns, while risk-tolerant investors are willing to accept a higher degree of variability in order to potentially earn higher returns.
There is no right or wrong answer when it comes to risk tolerance: It’s simply a matter of personal preference. Some people are comfortable with more risk because they have a longer time horizon or because they are more financially secure. Others prefer less risk because they have a shorter time horizon or because they are less financially secure.
Ultimately, the best way to determine your risk tolerance is to consider your financial goals and objectives. If you are investing for retirement, you may be able to afford more risk earlier on because you have a longer time horizon. If you are investing for a short-term goal, you may need to be more conservative in order to minimize the chance of losing money.
The Importance of Financial Planning
Financial planning is important because it allows you to set aside money for future expenses and goals, while also taking into account inflation and other factors.
This way, you can be sure that you will have the resources you need when you need them. Additionally, financial planning can help you maximize your estate by ensuring that you distribute your assets according to your wishes.
Other Sources of Retirement Income
If you’re a retiree, you may have other sources of retirement income besides your pension. This could include things like rental income, investment income, or even income from a part-time job.
It’s important to manage your finances after retirement and consider all of your sources of retirement income when planning for your financial future.
Deciding How Much to Save Each Month
You will need to save money every month in order to have enough money for retirement: Your social security and pensions will likely not be enough.
You should speak with a financial advisor to come up with a plan. They will help you determine exactly how much you need to save each month, based on your rate of return and inflation, to easily achieve your retirement planning goals.
Tax-Advantaged Retirement Accounts
One of the best ways to catch up on retirement savings is to start investing in tax-advantaged retirement accounts. There are several types of tax-advantaged retirement accounts, including Roth IRAs and 401(k)s.
Each has different rules and benefits, but they all offer a way to reduce your taxes while saving for retirement.
401(k)s are largely offered by employers and are usually the easiest way to start saving for retirement. If your employer offers a 401(k) match, that’s even better. You should also consider opening a health savings account (HSA) if you have a high-deductible health insurance plan: HSAs are a great way to save for healthcare costs in retirement.
Always Remember Inflation
Inflation is a major concern for anyone investing for retirement. A retirement plan has to take into account not only the pay for living expenses but also the rising cost of living expenses. An investment strategy that doesn’t allow for at least some inflation is likely to fall short when it comes time to pay for living expenses.
There is no one-size-fits-all answer to the question of which financial plan is best for you. The best retirement plan is the one that meets your specific needs and goals. In the end, you should consider your age, health, assets, liabilities, family situation, and other factors in order to create the best possible retirement strategy for your situation.
What about life insurance?
In the midst of all this financial planning, it’s easy to forget about what happens to your assets after you pass. Selecting a good life insurance policy is just as about as solid retirement planning so that your family, whether present or future, isn’t left twisting in the wind.
And while you’re at it, look into estate planning: It’s just as important as how you retire.