Creating a Retirement Plan: Simple Steps For a Solid Future
Planning retirement is an important step to make. The future of Social Security is uncertain, so it is up to each person to plan for their future. The benefits of creating a retirement plan includes deciding when someone retires, how much money they will have and how much free time they have available.
Pre-Planning Enables a Smooth Retirement
The first step in planning for retirement is to decide when to start saving. Your plan must have a starting point. Most experts suggest to begin at least ten years before your expected retirement age. Starting at a younger age is also common. This “early start” approach typically allows flexibility later, even sometimes allowing the benefit of being able to retire earlier than expected.
The second step is to target a desired retirement age. This usually ranges from 55 to 65 years of age. The most common retirement age in the United States is 62…yet every situation has different circumstances to consider.
The third step in planning for retirement is to evaluate your expenses and decide how much money is needed to cover the outgoing bills each year. Expenses, including mortgage, utilities, healthcare and food should be considered, as well as additional funds for hobbies and other enjoyable activities. For example, a person who owns their own home may also require an additional $10,000 a year for basic health care and other expenses.
A person who retires at 65 should expect to have money for 20 or more years. If the same person from the previous example saved for 20 years, they would need $200,000 to cover expenses. The next part in planning for retirement is to decide how to save that money.
Saving For Retirement
Most people recommend building a diverse portfolio when they speak of retirement. The truth is, saving money for retirement doesn’t have to be complicated. Placing money each month in a savings account could easily achieve someone’s goals over time.
If you decide to start saving for retirement at 30 and want to retire at 50, you will have 20 years to save whatever you can.
Other options for saving include cashier’s deposits, money-market accounts or funds, stocks and bonds. Each of these have advantages and disadvantages, but it’s up to the future retiree to weigh the differences. A smart choice is to open a retirement account.
There are many kinds of retirement accounts, such as traditional and Roth IRAs. A traditional IRA is a personal savings plan, giving tax advantages for saving money for retirement. Money in this account is not taxed until distributed and is tax deductible.
Roth IRAS are individual retirement arrangements. Withdrawals after age 59 1/2 are usually untaxed. Roth IRAS also have flexible rules for withdrawal. Contributions can be taken out without penalty or taxes, but gains can be penalized.
There are also 401k, 403(b) and 457 plans available. 401k and 403(b) accounts allow someone to invest money before taxes are paid on it, allowing it to grow tax-free until its withdrawal. Generally, plans offered by employers offer matching contributions. Self-employed people should look into a Keogh plan, which allows a tax-deferred retirement.
It’s easy to fall into a day-to-day existence and forget to plan for the future. However, those who manage to think ahead stand to gain increased opportunities to achieve wealth.
Here are some general tips for a solid retirement plan.
Paying down debt early allows financial freedom. Getting the mortgage payment out of the way ten or more years in advance will not only allow you more money to save for retirement, but will give you a greater peace of mind and sense of economic freedom.
Developing a new skill, post-retirement, can be a fun and even a profitable way for someone to spend their time. There is a chance to create supplemental income online or through hobbies.
Keep It Simple: Plan for Retirement Today
Planning for retirement can be as simple or as difficult as you decide to make it. More important than planning for retirement is to follow through with the plan. Even if you are only 25 years old, the sooner you start saving for retirement, the more money you will have and the earlier you can retire. Grab a calculator, evaluate your future and start saving.