Financial security does not simply happen overnight. Whether it is decades away or just a few years in the distance, it is wise to make retirement planning a cornerstone of your overall financial goals. Here are six things to keep in mind when planning for your retirement.
Understand Your Retirement Needs
It is impossible to know how much money you will need when you retire unless you have taken the time to run some numbers. Most experts agree that you will need approximately 70% to 90% of your pre-retirement income in order to maintain your current standard of living when you leave the workforce.
However, there are a number of factors that will influence this total need. Whether or not you own your house outright, where you plan to settle down in these years, and your health situation will impact how much cash you can anticipate needing as you near this season of life. Do not make the mistake of not working through all of these details.
The golden rule of sound retirement planning is to start as early as possible. It is never too early to begin thinking of your retirement needs. Do not discount the power of compounding interest. Even putting the smallest amount of money away each month can really add up over decades.
However, you should not panic and give up just because you did not get an early start. It is never too late to begin socking money away for your golden years. While you may need to play catchup, every little bit of savings will help to pad your nest egg in the years to come.
Consult the Help of a Professional
Consulting with the help of a trained financial professional is invaluable if your goal is to maximize your retirement savings. When gathering retirement planning quotes, it is important to work with a Certified Financial Planner (CFP) that has your interests in mind.
A CFP is trained to help you to define and prioritize your goals and prioritize while making a plan to reach financial freedom. Because every individual has different financial needs, it is important to find a professional that will customize their approach to fit your preferences and personal situation.
Leverage Any Matching Funds
Many employers offer retirement savings plans to their workers. You would be remiss if you did not take advantage of these plans. Not only will your tax burden be lowered but you may also enjoy a matching fund directly from your employer.
You are simply leaving free cash on the table if you do not take advantage of this matching money. Be sure to read the fine print so that you understand how long you need to stay with the company in order to take advantage of full employer contribution.
Do Not Neglect Individual Retirement Accounts
Once you have maxed out the contributions that you can make to your employer-sponsored retirement account, you can also consider putting money into an Individual Retirement Account (IRA). Americans up to the age of 50 can contribute up to $6,000 per year in an IRA, opening up the door to many tax advantages. This maximum contribution limit increases as you age.
Figure Your Social Security Benefits
In addition to the money that you personally invest for retirement, you are also eligible to receive Social Security benefits from the government. This amount is calculated using your earnings over the highest 35 years of earnings. As such, this amount varies between individuals based on how much they earned during these peak years and when they decided to start drawing on these benefits.
You can go to the Social Security Administration’s website to find online calculators to help you to estimate your benefits. A general rule of thumb to follow is to expect these benefits to replacing about 40% of your pre-retirement income. However, this percentage will be lower if you are a high-income earner that regularly reached the maximum owed each year for social security taxes.
These five tips form the basics of sound retirement planning. Following these strategies will put you in a good position to enjoy your retirement years with financial peace of mind.