SHARE ON
After spending decades on the job, there are few greater feelings than being able to retire with peace of mind. Unfortunately, millions of people around the country approach their retirement date with little to no plan and a feeling of being trapped between continuing at work or struggling in retirement. One of the worst things about this situation is that it is entirely avoidable! Proper planning during your earlier working years can set you up for a leisurely and prosperous retirement phase that requires little to no stress.
There is no “one size fits all” approach to retirement which means jumpstarting the process may feel a bit intimidating. But what this fact also means is that anyone, with any type of income or job is able to plan for a successful retirement at any time. Knowing where to start may be difficult, but there are surefire steps to help begin your retirement planning.
Determining Your Retirement Age
Many people mistakenly believe that collecting Social Security payments is as good as planning for retirement. If only it were that simple! While Americans are entitled to collect Social Security beginning at the age of 62, these payments are frequently insufficient for a person to subsist off during their retirement years.
In fact, full retirement age in regard to Social Security is at 67-years-old for anyone born in 1960 or after. While it is possible to begin making claims at the age of 62, total benefits will be less than at full retirement age. Benefits increase if you can delay filing until you are 70 or older, too.
Determining your target retirement date is going to depend on who you are, what you do for a living, and what your goals are in retirement. Some people will look to retire as early as possible while others are content working into their golden years. A critical aspect in determining your retirement age is in having a deep and honest conversation with yourself, a financial planner, and your loved ones about the type of retirement you wish to have.
When Do I Start?
This question is one of the first that anyone beginning their retirement planning phase asks. The truth is that if you are asking this question, the answer is simple: right now! Financial experts recommend planning for retirement as soon as possible and the earlier, the better. The earlier you are in your career and/or the early you are in your 20s, the better off you will be in the long run when it comes to creating a retirement that appeals to you.
At the same time, if you are neither young nor just starting out in your career, it’s also never too late to start planning. It may sound cliché, but if you are able to put away a small amount of money every week, you can still build up a retirement portfolio for down the road. One of the worst things that can be done is thinking that you’ll never be able to retire or that you’re too old to start. Having an open mind and a desire to get started are the only prerequisites to begin at a later stage of life. The only obstacles are often those in your own mind.
How Much Money Do I Need?
Like mentioned above, the amount of money that you will need in your retirement phase is going to vary depending on your life situation. Things like current income level, expenses, and goals, are all going to factor into your contributions towards your retirement and towards planning out that stage of your life.
There are some general guidelines that can be given here, though. Most financial experts will provide the general guidance to look towards replacing between 75%-90% of your income prior to retiring. What this means is that someone earning $100,000 per year when they retire should plan to earn $75,000 to $90,000 per year, on average, in retirement. If you’re thinking to yourself, “I don’t earn anywhere near $100,000!” don’t fret, it’s just a simple math example. These percentages help provide a general picture of what type of money the average person should aim to have for themselves between their private retirement account(s) and Social Security.
Figure Out Your Financial Goals
One aspect of retirement planning that makes it so daunting to so many is that it is not the only priority we have during our working years. Saving for a home, a rainy day, vacations, our children’s educations, all of these things take planning and a good chunk of our income. How can we possibly be expected to put even more money away for retirement?
A critical component to successful retirement planning is keeping your eye on the big picture. While there are many important and pressing needs in our lifetimes to save and plan for, our retirement is one of the most important. Very few people want to work their entire lives because they absolutely have to. Ensuring that your retirement years are spent doing the things you want to do instead of the things you have to do is one of the most important things to be done while we have the time.
What Plans Are Available to Me?
Again, depending on your employer, you have a few different options for your retirement planning. Many employers have a 401(k) or some other type of retirement plan that is offered to employees. One perk that some employers offer is a certain percentage of contributions to be matched. If your employee matches a percentage of what you put into your account, do all that you are able to maximize how much free money they provide towards your retirement. Your future self will thank you!
If your employer doesn’t offer an account for you to invest in, there are different types of private retirement accounts that you can open. The most popular type of retirement account is an individual retirement account, or an IRA. There are numerous types of IRAs, all with different tax implications. Speaking with a certified financial planner is a great way to educate yourself about which type may be best for you.
What Do I Invest In?
Luckily, retirement accounts, whether they be through an employer or set up privately, generally provide an easy path towards investing. These accounts typically expose investors to a wide array of investments, ranging from stocks, bonds, and different mutual funds. A conversation that you will need to have with a financial planner is what your overall risk tolerance looks like and what your goals and timeline are for retirement.
Younger investors should typically be a bit more aggressive during this phase of their retirement investing because there is a greater amount of time to absorb losses in the short term while also being exposed to higher potential gains. If you are starting out a bit later, it may make more sense to have a more moderate risk profile. Again, it is going to depend on your individual situation to accurately assess your risk tolerance.
Another perk of retirement planning is that you don’t usually need to be very active in monitoring your account. Since most plans are spread throughout several different investments, there is virtually no rigorous maintenance required and most of the heavier lifting is conducted by a financial advisor who will tweak things as necessary and as you see fit.
The Bottom Line
If you aren’t yet investing in your retirement, today is a great day to start! The younger you are, the better, but there is really no stage of life or work too late to begin plotting out the retirement you’ve always wanted. The one certain way to have a disappointing retirement phase is through inaction, so by simply asking questions and taking those first baby steps, you’re already putting yourself in a position to succeed. There are several different account options and many different firms that can get you started on the pathway to a prosperous future, and many offer virtual consultations and a wide variety of resources to help answer any questions you may have.
It’s understandable to be unsure of how to start. By following the above guidelines and getting in touch with a financial planner who specializes in retirement funds, you will be that much closer to a successful retirement and many years of comfort, financial security, and the ultimate peace of mind.