Many young people find it challenging to think about retirement planning because they are busy starting careers, families, or moving to new locations. However, as life goes on, the need to plan for the future arises. Having financial freedom and security during retirement is the dream of every individual. But this requires adequate planning. Retirement planning determines how you will live when you are old and not willing or able to work anymore.
What is Retirement Planning?
In general terms, retirement planning is planning your finances for the period of life after you leave the workforce. It involves five steps including:
- Understanding when to start
- Calculating the amount of money you require
- Setting priorities
- Choosing appropriate accounts
- Choosing investment vehicles
The idea is to start saving when you are young and investing the money through available options offered by your employer and other personal investments. However, there is no one-size-fits-all retirement plan. Every person has unique preferences and situations. It would help if you worked with a qualified financial advisor to develop a retirement plan strategy that fits your lifestyle.
Importance of Retirement Planning
Nothing is more frightening than the thought of outliving your finances during retirement. Even what you might consider an adequate portfolio can be inadequate for your lifestyle if not properly managed. One benefit of retirement planning is that it will help you prevent running out of resources during retirement. Which means you and your loved ones will enjoy financial security.
Also, if you don't have to worry about finances during retirement, you will have an enjoyable experience. If you plan ahead, you will have more to live on according to your lifestyle.
What steps should be taken in retirement planning?
There are several steps involved in retirement planning to have enough resources to sustain you in your golden years. The steps include:
Step 1: Understanding the appropriate time to start retirement planning
The common question asked is, "when should I start planning for retirement?" There is no defined period of starting retirement planning, but the earlier you start planning, the more your money grows. If you have not thought of retirement, it's not too late. Every penny saved now will be of much help later.
Step 2: Know the amount you need for your retirement
Your current income and expenses and the lifestyle you want to have after you retire determine the amount you need to retire comfortably. The idea is to replace about 70-90% of your current annual income with your social security and savings.
Step 3: Write down your financial goals and prioritize them
Apart from retirement, there are probably other pressing financial goals that need your attention, for example, paying student loan debt. A financial advisor will help you develop a strategy to meet all your financial goals.
Step 4: Choose a plan that fits your needs
It is not enough to know how much to save to enjoy your retirement. You should also know where to save. You can start by opening an individual retirement plan account or stick to 401(k) or other employer retirement plans. A qualified financial advisor can advise you on the appropriate retirement plan.
Step 5: Choose the appropriate investments
You can choose from various investment vehicles, including bonds, stocks, and mutual funds. The idea is to invest in various investments early enough to have an enjoyable retirement experience. A financial advisor will give you professional guidance on the appropriate investments according to your needs after retirement.
When should I start planning for retirement?
Now! Regardless of your age, now is the time to start planning retirement. The earlier you start, the more time your money has to grow. When you start saving in your 20s or 30s, your investment will have around 30 to 20 years to grow. The more you delay, the more the cost of your financial goals increases, and they become unattainable or expensive.
What should I do five years before retirement?
Five years to retirement may look like a long time, but it goes quicker than anticipated. If you don't procrastinate planning, you will have a happier retirement. Five years before retirement, you should:
- Have extra cash reserves like checking, savings, and money market accounts
- Estimate the amount you need to retire
- Understand the tax amount you will pay in retirement
- Increase the mix of your investments
- Learn more about retirement planning and investment
Working with a Financial Planner
A professional advisor should be your first consideration whenever you want to set up a comprehensive financial planning system. The expert will help review your current situation and determine the best plan for your goals. Financial planners also guide you to assess or evaluate the benefits and shortcomings of your chosen program.
Hiring or involving professional planners is prudent, especially if you struggle with financial management. Our expert financial planners at Florida Retirement Resources will guide you on meeting your financial goals and track your progress. As we advise you, our financial advisors will approach it from a broad perspective through a trusted relationship while building your progress to your desired goals.
We are here to help you start from the beginning. You don't have to struggle with the process alone. Work with our financial planners for better results. Contact us today and start your financial planning journey.