How To Start Planning for Retirement: A Short Guide
Are you getting close to retirement age and feeling a little lost on how to start the process? You're not alone! There are many steps involved in planning for retirement, and in this article, we'll discuss when to start, what steps are involved, how to save the money you need for retirement, and more.
If you’re interested in learning how to start planning for retirement and what options you have at your disposal, read on!
When Can You Retire?
For those born after 1960, the standard or full retirement age is 67 years old, and that's when you can claim your social security benefits in full.
You can start claiming them as early as 62 but will receive lower monthly benefits than if you wait until full retirement age. So, instead of a social security benefit of, say, $1,500, you could receive as little as $1,050 per month, depending on the circumstances. Conversely, your benefits will be higher if you delay them, which you can do up to the age of seventy.
Many people choose to ease into retirement by working part-time or doing consulting work. This can be a great way of getting ready for retirement and can also help supplement your income.
How To Retire Comfortably
If you want a stress-free retirement, start planning now. Statistics show that about 56% of Americans are unsure how much money they will need for retirement.
When planning, think about how you want to spend your time in retirement or what kind of lifestyle you want to have or maintain.
There would be no more expenses like commuting to work, and hopefully, by retirement, you’d have paid off your mortgage and any remaining debt.
On the other hand, there can certainly be some additional expenses in retirement. Those may include medical bills not covered by Medicare, long-term care insurance, travel, and hobbies.
Therefore, it’s important to know how to prepare for retirement, and we've compiled a list to assist you in getting started.
Save Early and Often
Start by knowing how much you will need to have saved in order to retire comfortably. Many financial advisors believe that you'll need about 80% of your pre-retirement income if you want to maintain your pre-retirement lifestyle.
If you're in your 20s, you have plenty of time to start planning for retirement. You can start by saving as much money as possible. Try to put away at least 15% of your income into a retirement account. If you can do more, then that's even better.
In your 30s, you should continue contributing to your retirement savings account on a regular basis. If your employer offers matching contributions, ensure you're contributing enough to get the full match they offer.
Your 40s and 50s are when you should be making the largest contributions to your retirement fund. For 401(k) plans, the contribution limit is $22,500 in 2023. If you're 50 or older, you can contribute up to $30,000.
For IRAs and Roth IRAs, the contribution limit is $6,500 in 2023 or $7,500 if you are 50 or over.
Create (and Stick to) a Budget
To save money through retirement strategies, you must first understand how much you are spending. Create a budget that details your income and expenses so you can see where your money is going each month.
Automating your savings can help make this process easier - set up a direct deposit from each paycheck into your retirement account.
Try a "practice run" by living on your planned retirement income for one month to see how you do. This will allow you to make any necessary adjustments before retirement becomes a reality.
Save Money Where You Can
Look for ways to cut back on your spending to increase the amount of money you can save each month. Review your budget and see where you can make some cuts, even if they are small. Every little bit helps!
Once you have started to build up a nest egg, it's important to invest it wisely. Work with a financial advisor to create an investment plan tailored to your specific goals and risk tolerance.
Keep in mind that retirement planning is a long-term process - don't make any rash decisions in an attempt to achieve short-term gains. Instead, focus on creating a solid foundation that will support you throughout your golden years.
The key to success with any financial goal is discipline. And making retirement plans is no different - it requires dedication and commitment to be successful.
Automating your savings and investing on a regular basis can help to keep you on track, but it's also important to stay mindful of your spending habits and make adjustments as necessary.
Investing for Your Retirement
When it comes to retirement accounts, the most common ones are 401(k)s and IRAs.
If you're employed, one of the best retirement planning tools at your disposal is a 401(k) account. If your employer offers a 401(k) plan, you should sign up and begin contributing as soon as possible.
Many employers offer matching contributions, which means they will match a certain percentage of whatever you contribute. For example, if your employer offers a 50% match on 401k contributions, they will contribute 50 cents for every dollar you contribute, up to a certain amount.
This is essentially free money that can help you reach your retirement goals faster, so be sure to take advantage of it if possible.
If you're self-employed or your employer doesn't offer a 401(k) plan, you can still save for retirement through an individual retirement account (IRA).
An IRA is a personal savings plan that offers tax advantages and can be used to supplement your other retirement savings.
You can choose between two main types of IRAs - traditional and Roth. You contribute pre-tax dollars to a traditional IRA, and the account grows tax-deferred. This means you won't pay taxes on the money you contribute or the earnings until you withdraw them in retirement.
You contribute after-tax dollars to a Roth IRA, but the money can be withdrawn tax-free in retirement.
Additional Saving Options
Other options might mean a 403(b) plan or investments such as mutual funds.
403(b)s are similar to 401(k)s, but they're only available to employees of specific organizations, such as non-profit organizations and government agencies.
A mutual fund is one of the safer options available to everybody as it offers a variety of investments, which can help mitigate risk.
A retirement plan is one of the most important steps you can take to secure your financial future. By developing a solid plan and sticking to it by making regular contributions, you can ensure you’ll have the money you need when you stop working.
We hope this guide has given you a better understanding of what’s involved in retirement planning and helped you in achieving your long-term goals.
When should you start planning for retirement?
It's never too early to start saving for retirement. Even if you're just starting your career, setting aside a small amount each month can make a big difference down the road.
Also, it's essential to have a clear idea of your goals and objectives. Do you want to retire as soon as possible? Do you want to maintain your current lifestyle in retirement?
When planning for retirement, remember to account for inflation. The cost of living will almost certainly rise over time, so factor that into your budgeting.
How should a beginner save for retirement?
There are a few different ways to save for retirement. One option is to open a savings account at your local bank or credit union. Another option is to invest in a 401(k) or IRA. These are both investment accounts that offer tax advantages.
If your employer offers a 401(k) plan, you may be able to have a portion of your paycheck automatically deposited into the retirement account each month. This is a great way to make sure that you are consistently saving.
What is the first step in the retirement planning process?
For those wondering how to start planning for retirement, the first step is always to calculate how much retirement money you will need to save to maintain your current lifestyle after you retire. This includes considering factors such as inflation and the rising cost of healthcare.
Once you have an estimate of the amount you will need, you can begin to develop a savings plan. This may involve setting aside a certain amount of money each month or investing in a retirement account such as an IRA or 401(k).
I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.
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