Americans spend 20 years in retirement on average, but most have never calculated how much they need to save for that period. Don’t wait till you’re retired to start retirement planning; start saving consistently and intentionally investing now. Stay on track and attain your retirement financial goals with our personalized retirement planning tips.
Work With a Retirement Financial Advisor
If you want to avoid guesswork in managing your finances–and the negative effects that may follow–work with a retirement financial advisor to gain expert insight. Consult a pro who’s grown the portfolios of many retirees like you. They understand key retirement strategies and know what works and what doesn’t. WiserAdvisor connects you with two to three vetted financial advisors for free. Get started on your journey to financial freedom today.
Create a Retirement Budget
If you’ve saved up for retirement for decades, you may feel it’s time to enjoy your money once you hit retirement age. The problem is that you may spend all the money in a few years if you go overboard.
To avoid falling into this trap, set a retirement budget. Include extra costs you’ll incur, such as extra travel. You’ll know beforehand if you can afford to pay the extra costs. A budget will help you know how to use your savings, social security income, and pension.
Start Saving and Stick To It
You’re on the right track if you’ve already started saving for retirement. If you haven’t started, now is the time to start. Set a figure and increase the amount you save each month. When you start saving early, your money has a chance to grow. Come up with a retirement savings plan and stick to it.
Learn Basic Investment Principles
Don’t just start saving; save smart. Inflation and your investments will determine how much money you’ll have at retirement, so take time to understand each investment before committing. Understand your pension plan and your investment options, and ask lots of questions.
It’s wise to consider different investments as diversification will help reduce risk and improve return. These low-risk but potentially high-return investment options are ideal for retirees:
- Dividend stocks
- Money market funds
- Annuities
- Bank certificates of deposit
- Bond funds
- 60/40 mix of stocks and bonds
- High-yield savings accounts
You can adjust your investments over time based on age, goals, and financial circumstances. Always remember that knowledge and financial security go hand in hand.
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Get a Roth IRA
Look beyond your employer’s 401(k) and open a Roth IRA for after-tax savings and tax-free income in retirement. It can protect you against future tax increases. It’s worth mentioning that Roth IRAs have income limits. If you don’t qualify, you can contribute to a traditional IRA, which has no income cap. You can also talk to a tax expert about a backdoor Roth IRA by investing money you’ve already paid taxes on.
Plan For Healthcare Expenses
Healthcare costs can be significant during retirement, so plan ahead. Medicare doesn’t fully cover healthcare expenses, so you’ll be responsible for paying copayments, deductibles, and vision and dental care. Start funding a health savings account (HSA) if you have a high-deductible health plan. This tax-advantaged account lets you use pre-tax money to cover some out-of-pocket medical expenses.
Sign up for Medicare
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Medicare covers some medical expenses, so you won’t have to pay for them. Medicare covers in-patient care, certain follow-up care, and some services not covered by hospital insurance. Hospital insurance is free for retirees as they pay for it through Social Security taxes while working. Medicare is available to individuals aged at least 65, younger disabled individuals, or those with permanent kidney failure.
Explore Double Retirement Plan Contributions
If you’re a healthcare worker, teacher, non-profit employee or work in the public sector, you can choose to contribute twice the amount to retirement plans. Specific catch-up provisions permit this for some plan participants 457(b) and 403(b). You can visit the Internal Revenue Service (IRS) website to learn more.
Regularly Rebalance Your Asset Allocation
Asset allocation, distributing different assets based on your risk tolerance, financial goals, and time horizon, is a smart financial move. It diversifies your portfolio and decreases the effects of market fluctuations. Over time, your portfolio’s asset allocation may be thrown out of balance because of market swings. To avoid this, you must regularly rebalance your portfolio. This aligns your investments with your risk tolerance and long-term strategy.
Delay Taking Social Security
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Social Security is usually adjusted for inflation and can help you cope with rising inflation. But if you want to benefit the most, delay taking your social security benefits as long as possible, especially if inflation is high. The larger checks you get later on will make up for the smaller checks you passed up earlier. Use other retirement income sources as you delay taking Social Security benefits, like your individual retirement account (IRA) or 401(k).
Leverage Tax Diversification
How you withdraw from taxable and tax-deferred accounts—and which one you withdraw from first—will determine the taxes you owe and how long your assets will last. Be smart and withdraw taxable savings before tapping into your tax-advantaged retirement accounts. But consider your specific situation. You may enjoy more tax benefits if you withdraw from different retirement savings accounts simultaneously. Consult a tax professional to determine the best strategy.
Get Insurance
Even if you’re super smart about investing, unexpected events can occur. An illness may prevent you from earning an income, or a storm may damage your home. Insurance can help protect you against these risks. Auto insurance, home insurance, umbrella life policies, long-term care coverage, or disability income insurance can help. When you have insurance, you can focus on planning for the future.
Consider Part-Time Work
It’s a good idea to keep earning income after retirement. This will reduce the amount you need to withdraw from your retirement nest egg and increase your financial security. Choose a part-time retirement job when you’re still working. Tell your connections you’re offering consulting services. You can set your own working hours and even take up the occasional one-off project.
Avoid Emotional Investing
Most investors invest based on their emotions and market cycles. They invest more when markets rise and invest less during market downturns. But here’s the thing, if you pull out of the stock market when it reaches its low, you miss out when it rises again. Check your emotions when investing, as they can cause you to do the opposite of what you should do. Invest regularly over the long-term to gain the most.
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Alice is a writer and editor for Gainful Retirement. She is passionate about helping retirees live fulfilling lives without financial constraints. She puts a lot of time and effort conducting market research to identify common issues faced by retirees. Her passion is to help you enjoy retirement and solve the most pressing issues you face.