Here are five common retirement planning ideas and what you can do to take advantage of them. The key is that planning for retirement starts now, not decades from when you reach retirement age.
1. Have a plan
Surprisingly, most don’t know how much money is needed for retirement. This is made much more difficult with inflation playing a major role in finding the correct answer. A retirement plan should take into account your lifespan, an estimate of how much money you will need, and a description of your desired retirement lifestyle. Your plan should have measurable goals that you aim to achieve.
Action point: If you have a plan, review it for possible revisions. If not, consider creating one as soon as possible.
2. Start early enough
One of the most powerful tools for a well-funded retirement is to start saving for your retirement at an early age. The sooner you start saving, the better off you will be.
Action point: Open a retirement account and start saving now. Increase the percentage of your salary that you put into tax-advantaged retirement savings accounts. This includes IRAs, 401(k), and other plans.
3. Maximize employer contributions
Many employers offer plans to help their employees save for retirement. If your company has a retirement plan, understand how it works and how much you can expect to receive in retirement. If your company has a pension plan matching program, take full advantage of this free money by making the minimum contributions required to receive this employer match.
Action to take: Review the retirement savings options provided by your employer. Maximize the benefits they provide.
4. Consider working after you retire
Do you plan to work in retirement or avoid working at all costs? Do you plan to have a pension or social security covering all your retirement needs or none of that? Too often, retirees plan for extremes, but the reality is something in between. For example, if you expect your retirement plan to fail and Social Security to go bankrupt, you may be taking too conservative an approach.
Action: Create a range of retirement funding scenarios, not just the worst-case or best-case scenario. Consider not working or working part-time. Consider a Social Security contribution and potential retirement income if your employer has a program.
5. Understand the true nature of your retirement
Are you realistic in your future retirement plans? Have you correctly estimated the cost of health insurance? Have you really thought about the impact of moving to a warmer climate? How important is it to live close to family and friends? Are you really going to downsize your house after the kids move out?
Action Point: If you have a retirement plan that includes moving or traveling to remote locations, consider testing this idea before implementing it. You might be surprised at the result.
Retirement should be something to look forward to, especially with a little planning.
James Angell is a Certified Public Accountant based in Willits. His office is located at 461 S. Main St. and he can be reached at 459-4205.