How do you feel about your retirement plan? Do you think you’ll have enough to keep your head above water, or do you plan to work part-time after retirement? These are questions that few people think about, but they’re worth consideration – especially if you don’t want to worry about finances in your retirement years.
After retiring, you could realistically live an additional 20 or 30 years. A great plan for retirement is the only way to ensure that there’s enough cash to maintain your standard of living once you stop working.
If you’re ready to get serious about retirement, here are five tips to set up a great plan for retirement.
1. Estimate your retirement needs.
Estimating how much income you’ll need in your retirement years can be a real challenge, especially with fluctuations in the cost of living. However, according to the U.S. Department of Labor, you will need between 70 percent and 90 percent of your pre-retirement income to maintain your standard of living. Of course, if you’re planning to downsize or move to an area with cheaper housing, you might be able to get by on less. To make sure that you’re on the right track, hire a financial planner to help you work out a doable plan.
2. Don’t put all your eggs in one basket.
To create a great plan for retirement, you need to explore all your retirement savings options and take advantage of multiple options. These can include individual retirement accounts, 401(k) plans, certificates of deposits, money market accounts, stocks, bonds and mutual funds.
Some people mistakenly rely on only one type of savings strategy. They might depend on an employee-sponsored retirement plan to survive the retirement years, or they may feel that Social Security benefits will provide enough income. If you’re looking to secure your financial future, you need a Plan B – just in case.
A financial planner can break down the options available to you, explaining the risks and benefits. There is no secret formula for a great retirement. A plan that works best for you may not work for someone else. It’s all about determining your future financial needs and goals, and choosing plans to help reach these goals.
3. Start early.
It goes without saying – the longer you work and contribute to a retirement plan, the more you’ll have in your nest egg. For this matter, don’t wait until you’re 15 or 20 years away from retirement to think about your options. Granted, most people in their 20s aren’t thinking about saving their money, and they certainly aren’t thinking about retirement. But this is the time to start.
4. Pay off your debts.
Include debt repayment as part of your plan for retirement. The less expenses you carry into retirement, the less income you’ll need to maintain your standard of living. Of course, this is easier to say than do, as most people have mortgage loans, auto loans and credit card debt. But if you make smart financial choices in your early years, you can enter retirement with little (if any) debt. If you’re buying a house later in life, go with a 15-year mortgage to pay off your home before retiring. And if you have credit card debt, pay off these balances, as this will also free up cash. Don’t take out unnecessary loans, and whenever possible, pay for things with cash.
5. Don’t touch your savings.
As you watch your retirement income grow, you may be tempted to dip into your accounts and have a little fun. Although funds in your account can provide cash for a down payment, pay off debt or serve other useful purposes, retirement accounts have costly early withdrawal penalties. And depending on the circumstances, you may have to pay taxes on what you take out. But there’s a bigger issue at hand, the more you dip into your retirement savings, the less you’ll have when you’re ready to retire.