Nobody wants to get up early every day and go to work for the rest of their life. There comes a time in life when you must take a step back and simply appreciate life. However, to have the independence you desire, you must begin planning for your retirement as soon as possible. Are you wondering how to go about the planning process? Worry not; this article will give your insight into the dos and don’ts of retirement planning that others have utilized before you. Therefore, follow through for the insight:
Make a point of doing the following:
1. Set Goals
Setting goals is essential since it’ll help you develop an effective and viable retirement plan. The guiding principle to doing this is by first laying down the facts. At what age do you want to retire? How far are you from reaching that age? What kind of lifestyle do you want to have once you retire? Do you plan on buying a yacht or any other luxury on retirement?
Once you answer these questions, you’ll get a rough idea of how much you need to have by the time you retire. The figure might be huge, but this shouldn’t worry you. You need to work backward from this figure and break down the amount into small manageable figures. The breakdown should help you know the amount you need to set aside yearly and monthly, including the time frame, to achieve your retirement goals.
By setting goals, you won’t be saving blindly; you’ll be investing with a definite purpose.
2. Hire A Professional
Money management can be challenging, especially if you lack financial knowledge. When it comes to your retirement plan, you need to devise plans that’ll work since an important aspect of your life depends on it.
Based on this, it’s advisable to hire a financial professional to assist you with your planning. Asset Preservation, a renowned retirement planner in Arizona is one of those companies that can assist you. They’ll give you financial advice and enlighten you about taxes, budgeting, and saving using their financial knowledge. There’s a low likelihood of you making mistakes, ensuring you achieve your goals.
3. Prepare For The Unexpected
In the course of your life, there are events that you can’t foresee, such as getting a long-term illness or losing someone close. It’s best to prepare for such events financially by setting up an emergency fund to cater to them.
You won’t need to take money from your retirement savings to meet the new needs by planning for the unexpected. You’ll be consistent with your savings, ensuring you achieve your retirement goals.
4. Start Saving Now
Most people will procrastinate saving for retirement with the mindset that it’s still early, only for retirement to creep upon them, and they start panicking. Don’t fall into the same trap; start saving now; it doesn’t matter if you’re in your 20s or 30s.
The benefit of starting to save early is that you have the luxury of setting aside small amounts of money monthly that’ll still help you reach your goals. When you start saving close to retirement, you have to increase the number of your installments, which might strain you financially and stress you.
5. Review Your Assets
Your assets will account for the majority of your retirement funds. This implies you must acquire and invest the appropriate assets. The asset’s rate of return and interest rates are the most important factors to consider.
Are these rates high enough to help you achieve your retirement goals within your designated time frame? Ensure they’re viable enough; if they aren’t seek other investment portfolios such as equities.
6. Eliminate Debt
It’s believed that debts are the number one killer of dreams; this also applies to your retirement plan. With debts in place, you’ll set aside money to pay them; you’ll have less money to put in your retirement account. Therefore, make it your ambition to pay off your mortgage, car loan; you’ll achieve more financial security.
You should also avoid getting into debt towards your retirement age. Once you do this, you might use your retirement savings to pay them off, defeating your retirement goals and purpose.
Here are the don’ts:
7. Invest Unwisely
How you go about your investments will determine if you’ll achieve your retirement goals or not. One of the investment mistakes you shouldn’t make is having portfolios that give you low returns or that are non-performing. With low returns, you won’t accumulate a lot of money over the years, increasing the probability of not achieving your goals.
Another mistake is investing all your money in high-risk portfolios. Yes, high-risk portfolios will earn you high interests, but there’s a chance of losing all your investments. Losing all your investments might take you back to zero with your retirement plan.
It’s not a good idea to put all of your money into one portfolio. If the portfolio fails to perform, you will be left with nothing. The reduce risk, it’s essential to diversify your investments in this case.
When it comes to investment, you shouldn’t follow the crowd. What works for another investor might not work for you; therefore, you need to do your research and make an informed decision based on your understanding.
The other mistake to avoid is investing in aspects that charge high sales fees. A sales fee, also known as a load fee, is the amount you pay the agent who manages your portfolio. This is common with Money Market Funds (MMFs.) Steer away from such portfolios; however, select those whose fees are low if they’re your preferred choice.
8. Fail To Factor-In Taxes
Tax is an aspect that many investors leave out that often affects them in the future; don’t be one of them.
The amount you invest for your retirement is subject to taxes, especially during withdrawal. When you fail to factor in taxes, the amount you’ll withdraw after your period will be less, which won’t match your retirement goals.
Therefore, you need to increase the amount you save by a small percentage to cater to the taxes. With this, once you withdraw your retirement money, it’ll be enough to meet your retirement needs.
9. Cash Out All Your Savings
Cashing out all your money once you get to retirement is a mistake you shouldn’t make. Once you do this, you might overspend and have nothing left a few years down the line.
It’s wise to withdraw your cash in stages after retirement, preferably yearly. Also, only withdraw the money you need at the moment, or in a month or two. By practicing this, you’ll enjoy all your retirement without financial woes.
10. Fail To Rebalance Your Portfolio
This is an important consideration that you should not overlook, especially if you’ve chosen automatic investing, in which the system purchases stocks on your behalf. If you don’t rebalance your portfolio, you might lose your money in the end. How?
This is because an automated system will buy whether the prices are high or low. Therefore, your original investment amount will likely be less over time, which might not help you reach your retirement plans. You need to visit your investment portfolio to make readjustments by buying or selling stocks until you return to your original amount.
Rebalancing your portfolio also means reshuffling your investment percentages. If you’re nearing retirement, you can lean towards those with fixed income and lower risks and reduce the percentage on the high-risk portfolios. This will give your money a safe balance and moderate risks.
11. Fail To Plan For Your Health
As you age, there’s a high possibility of falling sick here and there or developing lifestyle conditions. You need to factor this into your plan such that you don’t spend your retirement money on medical bills.
Do this by taking out medical insurance way before your retirement and it shouldn’t be part of your retirement savings. Ensure the insurance is large enough to cater to any illness, whether you’re sick or not.
It’s also advisable to live a healthier life to prevent the development of diseases once you age. This is sure of reducing your future medical bills.
12. Rely Too Much On Social Security
A majority of the population invests in retirement by making deposits to their social security accounts. You’ll get income and medical coverage when you retire with a social security account, among other things. This is a legitimate and viable way to save for retirement, but it isn’t highly reliable.
What if, after a few years, the program stops existing? What if the benefits change and the remaining ones no longer suit you? Where shall you be left and retirement is knocking at your door? It’s all about risk diversification here; don’t put all your eggs in one basket. Should any risk occur, you want to be left with something.
As stated earlier, retirement needs adequate planning for you to enjoy this period of your life. No one wants to age as they worry about putting food on their table or not taking a vacation they’ve always desired in their entire life. Therefore, consider the tips this article has given as you plan for your retirement. By doing this, you won’t miss out on any crucial aspect regarding your retirement that would make the journey disastrous or unfulfilling.
This article is for information and educational purposes only and does not form a recommendation to invest or otherwise. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.