When you first started saving for your golden years, you likely had a goal that you were working to achieve. Whether it was lofty or realistic if you got that far then you were ahead of many others who were just relying on their savings account. While numerous companies have 401(K) plans that will help guide you in the right direction, these types of retirement savings require you to start contributing at an early age in order to reap the benefits of compound interest. But there is so much more that goes into planning for a comfortable retirement than just a 401(K) plan.
Why Start Retirement Planning?
Financial planning is never cut and dry. There are many twists and turns that can happen with the market and the economy, so, as you age, it is wise to decrease your risk and start saving, investing and planning more strategically. No one can predict the future with certainty, no matter how hard they try, so, it is always uncertain whether your 401(K) will hold you over throughout your golden years.
Follow these 6 steps to ensure that your retirement planning sets you up for success:
- Know your needs – Before you start running around like Chicken Little, proclaiming the demise of your financial stability, take an honest look at your retirement needs. Are there costs that you can cut and savings that you can start making now? The answer is likely “yes.” There will be many uncertainties with your plans for retirement, but that is why you build in some financial wiggle room. According to the Department of Labor, experts estimate that you will need at least 70 percent of your preretirement income and those that are lower-income earners, will need approximately 90 percent or more in order to maintain their standard of living when they stop working.
- Solidify a guaranteed income – While the future is uncertain, you don’t want your financial security to be the same. Whether you prefer to rely on a pension, Social Security or an income annuity, make sure that you have some steady income to lean on. Social Security benefits are typically 40 percent of what you earned before retirement but pensions and annuities vary depending on the plan. This income will help you pay some necessary expenses, but won’t cover all your bills or unexpected costs.
- Evaluate your health – Don’t wait until your health begins to decline to make it a priority. Start a preventive health care routine now. Medical bills and health care costs are not often paid in pocket change. These are huge costs that should be prevented if possible. But no matter how healthy you appear to be in the moment, some health care needs are unavoidable. Medicare benefits begin at age 65, but they often cover only a portion of medical costs. Consider your current (and possible future) needs and decide what Medicare supplements will be necessary for you.
- Build a nest egg… in cash – Leave your retirement savings alone. No matter how great you think the reason is, don’t touch it! Create a separate savings account or a life insurance cash value to give you a backup plan in case of an emergency. Whether your retirement accounts are taxable or not, you don’t want to withdrawal from them while the market takes a down swing. This would mean a huge loss for you in the long haul.
- Invest for growth – As you grow older, you will want to take fewer and fewer risks with your money. To ensure that your investments increase rather than decrease, select a mix of fixed income and equities that come at a lower risk. Of course, this means that you will receive a lower return, but at this age you are looking for guarantees, not a gamble. A diversified portfolio will give you an extra little cushion in case a particular type of investment doesn’t perform the way you expected it to.
- Inventory your assets – Whether they are physical assets that you can sell or skills that you can turn into an income generator, it is important to figure out where you can leverage some extra cash flow. You may not want to part with your antique collection right now, but if you are in a pinch, it is nice to know how much your items are worth before the pressure is on so that you don’t get swindled. You might be surprised where money-making opportunities are hiding!