7 Steps to Retirement Planning for a Safe and Secure Future
Retirement is a complicated thing, one day you feel good about it as you will finally get to rest and the next day you feel worried about your finances. But people planning their retirement in advance may have little or nothing to worry about.
Retirement planning is an ongoing process and you should try to anticipate things. Although no one can predict everything and it will be better to try to be close enough, it can bring some benefit.
Many people are too scared to retire because they worry about how things will turn out when they stop that income. However, planning for retirement is not a hard science, and following these 7 steps can allow you to secure your future.
1. Retirement Planning – Assess your financial situation
First, take an inventory of all your current assets, liabilities, income and expenses. You can sit down with your retirement planner and make a projection of what your responsibilities and expenses will be. When you retire, some expenses may stay the same, like groceries and insurance and more.
However, some expenses may increase such as travel expenses, holiday expenses and less expenses for growing children. Some costs will also be covered by pension and social security. Highlight your worries and questions that haunt you at night and discuss them with your planner.
2. Calculate the value of your assets and liabilities
Here are some tips on how to calculate the value of your current assets.
- Record the current amount in each of your accounts where you keep cash and liquid savings. These include checking, savings and money market accounts and certificates of deposit.
- If you have savings bonds, calculate and determine the current value or call the bank to find out the current value.
- Call your agent and find out the cost of your whole life policy as well.
- Invested in stocks, bonds or mutual funds, then check the value on financial websites or from your latest statement.
- Use the current value of your house and other real estate.
- List the current value of your pension, IRAs or other retirement plans you are considering. Try to know the value if you decide to redeem them today.
- Also consider other assets such as businesses and rental properties.
- The balance of your home mortgage is a monthly liability.
- Also consider any other mortgages or home loans.
- Record the balance owed on credit cards, installments, loans and investment accounts.
- List all current and overdue bills you owe. These include utility bills, doctors, dentists, phone, water, gas, property tax, and more.
3. Know what you want
We all want so much that we mess with so many things. Make a list of the things you think should be part of your lifestyle after you retire. Consider everything that may seem small to be prepared for it.
Do you know how much money you will need to retire and live comfortably?
Well, research shows that you should replace 70-90 percent of your income before retirement. It helps you estimate your goal based on your current income. Although this is a rough estimate and keeping that in mind lets you be on your way. Keeping factors such as vacation habits, medical expenses, house rent in check will have a significant impact on how much you need to save.
If you can save an adequate amount of money for retirement, then you will also have opportunities to live the life you want. Proper retirement planning allows you to overcome any barriers and limitations and add to the leisure time of the golden period of retirement. You might even have enough to leave something for your next generation. Don’t be afraid to aim high!
4. Cash flow planning
Present value is important to your retirement planning. This is the amount of money you need in your account today to plan and save for your future. Many people work with their financial advisors or retirement planners and create individual retirement accounts to prepare for their retirement. You can do this while planning before and after retirement.
Planning before retirement
It’s nearly impossible to start retirement planning without a budget. Your budget is an essential part of planning your cash flow both before and during retirement. This is a basic analysis that one must do to determine how much money is needed to maintain the lifestyle that you and your family are used to living.
Once your budget is ready, it should be reviewed each year to determine if additions and subtractions change the planned budget or if any other adjustments are needed. A budget will also help protect your long-term and retirement savings.
- Emergency fund
Let’s face it, unexpected financial problems can arise at any time and it’s not easy to avoid them. So it’s always a good idea if we have some savings to help you with your inevitable needs.
Your emergency fund should be set aside in a liquid way because you never know what time or situation you might need it. The total amount should be decided by you and your family and it should be at your comfort level. Some people may be okay with having $10,000 or $20,000, while some people would like to put a higher amount toward their emergency funds.
- Risk Management
One area that is often overlooked in retirement planning is risk management. People usually focus on saving money for retirement. However, they forget to keep risk management in mind. Risk management includes auto insurance, home insurance, short-term and long-term disability and health insurance. You should create policies regarding them and they should be monitored, reviewed and updated as necessary.
Planning during retirement
During retirement, your plan should begin again with budgeting. Your income will change after retirement, so it’s essential to monitor your cash flow during retirement.
Budgeting for retirement isn’t just about controlling cash flow. In fact, it also includes an analysis of all your expenses during the year. It allows you to identify places where you can use other or cheaper substitutes or how to plan for significant expenses.
Tax planning is a huge challenge for some retirees. It takes a lot of planning in terms of analyzing the sources of funds. This allows you to maintain your lifestyle and therefore you need to be mindful of your tax implications.
Different types of accounts have different types of tax consequences when they are funded or withdrawn. Retirement savings or qualified accounts are taxed as ordinary income. Non-qualified accounts are taxed at capital gains rates.
When specific funds are needed to support a lifestyle during retirement, it is important to preserve the tax implications of the accounts funding your retirement.
Taxes shouldn’t be the only consideration when doing retirement planning. Instead, it should be combined with other aspects of your overall financial planning.
- Estate planning
While proper estate planning is a critical pre-retirement component, post-retirement planning has a more important role in estate management. It is essential to determine what you and your family would like to settle for.
What is critical is that your approach to estate planning is similar to your approach to risk management. Your estate plan should be reviewed and updated regularly.
5. Invest or save
It’s perfectly fine to start late, too. The key to expecting success is a positive outlook and understanding that delay is better than never!
If you’re over 55, the government offers savings on catch-up contributions, so you can get help to save a little more. Sometimes the savings account and employee pensions may not be enough to meet your goals. This is when you research investment products.
It is always good to have an investment on your side if you plan to improve your standard of living and remain financially stable for a long time. There are many different ways to save your money, but IRA accounts have proven to be the best. If you don’t know about it yet, look to the mighty internet for guidance.
Build a diversified portfolio of savings accounts, investments, stocks, bonds, property and insurance that can work to your advantage.
6. Strategize to maximize your Social Security benefits
Social Security will likely remain an essential part of your retirement planning, and it is essential to maximize this benefit.
To maximize your Social Security benefits, you need to sit down with your retirement planner and make effective strategies for collecting Social Security. The age at which you decide to withdraw will also have an impact on your lifetime savings. You can start receiving from the age of 62. Also, the longer you wait, the more they will pay you. If you wait until age 70, your payment will increase to 77%.
Another important thing to be aware of is whether you are entitled to more than your own pension benefits! You may also be eligible to claim “spousal” or even “survivors” benefits if you are married, divorced or widowed. However, they are based on your records with your spouse, whether they are dead or alive.
Remember not to file for two or more types of benefits at once. You will probably lose one of them if you submit both at the same time. Strategize to get the smaller one first and the bigger one later.
Social Security uses the best 35 years of your working life to calculate your monthly earnings. If you have worked for less than 35 years, you must continue to work. Because it will also help you increase some of the lower income years.
7. Check and repeat
The most important thing to keep in mind while doing retirement planning is to focus on your savings. It should be updated and changed as needed. Review your retirement plan every year. Nothing is set in stone and with strong and solid planning you can lead to a happy retirement life. All you need is to put yourself in a position to be successful and organized.
Retirement is a life transition process. Just like other major life transitions, retirement requires you to adapt and grow. This may include some sad times for you like leaving your workplace, colleagues, moving house, ups and downs, lack of money etc.
However, these sad moments don’t last forever! The efforts you make before and during retirement to have a balanced life will help ensure that your retirement is a smooth and painless process.
Although the act of retirement happens in a day or a week. In fact, the retirement process takes place in the years leading up to your actual departure. Retirement cannot be an overnight success and requires extensive planning and preparation. Your retirement plan may even change at certain points in life, depending on your interests, activities and health fluctuations.
Trust yourself to adjust to retirement, relax and enjoy!
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