4 Key Steps to Planning Your Retirement
Deciding how to invest in retirement can be tricky. But deciding on retirement strategies or a financial plan for retirement is important to ensuring that you’ll be able to protect yourself and your future. Here are some tips that will get you started. Just remember that any plan for retirement is something that grows over time and every small step is a step in the right direction.
Your retirement strategy will include asking yourself questions like, “When do I want to retire?”, “Where do I see myself retiring?”, and “Do I want to consider an active adult community?”. It’s also good to have specific goals in your plan for retirement. For example, how much you’ll want to spend each year once you stop working.
If you plan on moving to a more affordable area, you might need less of an income than you’re currently making. As a rule of thumb, advisers also suggest that you’ll only need about 80 percent of your current income every year, even if you keep your living expenses exactly the same. That number deducts the amount of money that you spend on commuting to work, contributing to retirement, and paying into Medicare and social security.
Once you have an idea of how much you’ll need, you can develop your retirement strategies around how long you’ll have to work to achieve that goal.
Create a Financial Plan for Retirement
There are several different options to consider when deciding how to invest in your retirement. Most of your retirement strategies will revolve around the retirement goals discussed above, which is the amount you’ll need every year and the amount of time it will take to get there. With that in mind, you might consider the retirement strategies.
Company Sponsored 401K
If you’ve been working for a while now, chances are you already have one of these. A 401k offers you a few advantages. For one, employers are often willing to make a matching contribution up to a certain limit. Commonly, this is up to 50 percent of what you put in for up to 6 percent of your salary.
If you’re under the age of 50, the max amount you’re able to contribute to a 401k as of 2021 is $19,500. But if you’re over 50, you’re allowed to make what they call “catch up contributions.” This enables you to contribute an additional $6,500 every year as of 2021, although your employer will still only match up to 6 percent. That’s why the most effective plan for retirement starts as early as possible. But just remember—it’s never too early to start, and never too late.
A Roth IRA is different from a 401k in a few different ways. A Roth typically gives you a little more control over your investments. It doesn’t have the advantage of an employer match, but with a Roth you pay taxes on your contributions before you invest them. That means that you won’t have a high tax bill on the income later, unlike a 401k. A sound financial plan for retirement will incorporate both a 401k and a Roth IRA. They also both have the advantage of reducing your yearly income for the opportunity to pay taxes in a lower bracket.
While these are a few suggestions for how to invest in retirement, your financial plan may consider other retirement strategies as well. For example, did you know that 55 percent of American workers plan to continue working in retirement, with 41 percent going part time and 14 percent full time, according to the Transamerica Center for Retirement Studies?
The decision to keep working isn’t always a financial one—some people choose to keep working because they enjoy being active or keeping their mind stimulated. But if you feel like you haven’t started on your plan for retirement soon enough, the opportunity to continue working in a smaller capacity can also relieve you of some pressure.
We’ve already talked some about determining your retirement spending, through things like the 80 percent rule. But there are other things to consider too, that might affect how much you’ll need in order to retire. If you don’t want to continue working or feel like you don’t have enough time to develop a financial plan for retirement that would allow you to maintain your current lifestyle, you might also consider where you can cut back on some of your expenses.
Outside of moving to a more affordable area to live, some people may also choose to “right size” to a smaller home. A smaller home can lower your mortgage payments and also cut back on everyday expenses like utilities and small repairs. Or if you choose to live in an over 55 community that is in a walkable area, you may feel like you don’t need a car or that you don’t need two cars to maintain your lifestyle.
Scaling back on things you feel like you no longer use or need can be a smart way to help adjust your retirement spending and create a plan for retirement that fits into your budget.
Developing a financial plan for retirement can be challenging, but with the right retirement strategies in place you’ll have the opportunity to set yourself for a more relaxing and enjoyable retirement..
Contributed to The 55+ Society by Brittney Villalva
Looking for more Society tips and learnings? Return Home here.