It’s safe to say that everyone wants a comfortable retirement. But the best way to get there isn’t to focus only on retirement itself or a specific amount of money you need. Instead, the best way just might be to create a life plan that will make retirement both comfortable and happy. After all, retirement can be a time to do things you’ve never had the time to do before.
But how do you create a life plan for retirement? Here are 4 tips.
1. Figure Out What Your Ideal Retirement Looks Like
The best life plan springs from your likes and goals. Planning needs to take your feelings into consideration just as much as your investment accounts.
Take some time now to think through what your ideal retirement looks like. Are you living near beaches, or on mountains? Do you travel? Do you start a business? Do you spend time with grandchildren, friends or new acquaintances?
Whatever your ideal retirement is, you’re not likely to get there unless you know what it looks like.
What are your goals for retirement? Do you want to learn new things? Sit with your feet up? Enjoy your grandchildren? Do you want to have time for things you’ve always enjoyed, or bust some new moves?
2. Estimate Your Retirement Expenses
Despite the importance of knowing your feelings and goals, some people may take a “comfortable” retirement to mean one in which your expenses can be, well, comfortably met with your income. To make sure you’re on the right track, you need to figure out what your retirement expenses are likely to be.
Although a general rule of thumb long held that retirement expenses were a certain percent of pre-retirement expenses, that may not be true for you. Your expenses are very individual. If you want to move to a vacation spot or travel extensively, your expenses could go up, not down.
The best way to estimate your expenses is to take your current budget and go through it carefully, considering how they’ll change in retirement. What expenses are likely to rise? To fall (such as commuting to work)? What expenses may stay the same?
Be sure to factor in inflation’s impact on costs. Be aware that healthcare expenses are likely to rise much more than that, and be sure to budget generously for healthcare expenses, as older people often need more healthcare than younger ones.
3. Estimate Your Retirement Income
It’s also important to consider working with a financial advisor to help estimate your retirement income.
If you’re eligible for Social Security benefits, consider when and where you’ll begin to take them – because that choice can have a large impact on how big the amount is.
Many people become able to take Social Security benefits at the age of 62, but the amount will be reduced if you do. The reduction can be as much as 30 percent of what you would have received had you taken them at your normal retirement age.
(Normal retirement age is the age at which you are eligible to take full benefits. It’s determined by birth year. For everyone born in 1960 and after, for example, it’s 67.)
Conversely, Social Security benefits will increase if you put off taking them until after your normal retirement age, up to the age of 70. They will climb annually from your normal age to 70.
Both reductions and increases are permanent. It’s prudent to look at the yearly estimates the Social Security Administration sends you to estimate what your benefits will be. If you aren’t receiving these, contact them.
Once you know your estimated Social Security benefits and your forecast expenses, the difference between the two is roughly how much money you’ll need your investments to throw off. If you retire when you have $1 million saved, for example, will you be able to withdraw 4 percent every year? That’s $40,000 annually.
If there’s a disjunction between your goals and plans, your estimated expenses, and your forecast income, what strategies might solve it? Should you save more, work longer, move to a place with a lower cost of living, downsize your home or consider other options?
4. Save and Invest Wisely
One of the more important steps you can take toward a comfortable retirement is to save as much as possible for it and invest that money wisely.
If you are eligible for a 401(k) or similar plan, it’s important to be aware of the tax and savings advantages. The money is taken out of your paycheck before taxes, so your taxes overall are lowered for the year. The funds in 401(k) plans grow tax-free until you withdraw them at retirement.
If your employer offers a matching 401(k), you’re leaving money on the table if you don’t participate. For example, if you contribute 3 percent of your income and your employer offers a 100 percent match, you’ll be saving 6 percent of your income annually.
Individual Retirement Accounts (IRAs) are also great retirement savings vehicles. Contributions to a traditional IRA may be tax-deductible in the year of contribution. The money contributed to both traditional and Roth IRAs grows tax-free until the money is withdrawn.
Discuss what the money should be invested in with a financial advisor. The choices will depend on your risk tolerance, your age, the overall economy, the sector, and more.
Retirement can truly be a golden time when you pursue the goals and passions you want to pursue. But doing so means creating a comprehensive financial plan that includes your wants, your expenses and income, and a plan for saving and investing.
At Prism Planning Partners, we are CERTIFIED FINANCIAL PLANNER™️ Professionals committed to facilitating important questions so that we can help you explore all of your opportunities. We offer a broad array of financial planning and consulting services for our clients-including retirement, investment, and estate planning.
Contact us today and let us illuminate your possibilities!