by Brandy Abalos
etirement should be a time for relaxing, not worrying about your finances. There are some things that you can do now to plan for the future. No matter how old you are, these financial planning tips can help you get ready for retirement.
Pay off Debt
The last thing you need when you’re ready to quit working is high-interest debt weighing you down. Try to take care of those credit cards and personal loans well before retirement age. You might consider a lower interest debt consolidation loan through your bank or credit union. This will allow you to have one payment, and you’ll pay less over time if your interest rate is lower.
If you can’t pay off all of your debt before retirement, make sure it’s manageable. A low car payment and mortgage are reasonable. However, $2,000 in monthly credit card bills can quickly become overwhelming. Try to eliminate what you can so you won’t have to worry about it on a fixed income.
Know How Much You Need
In the past, people set their retirement sights on a cool $1 million.
However, that may not be enough with rising prices and inflation.
In 2024, you’ll need approximately $2.5 million to buy the same amount of things you could by today with $1 million (considering a 3% inflation rate).
Knowing exactly how much you’ll need is hard to determine. Some online calculators can help. However, it’s often best to work with a professional financial planner to evaluate your expenses, assets and how much you already have saved. They can help you plan for a specific amount and decide which steps you need to take to get there.
Allocate Your Investments Thoughtfully
There are many options for investing for retirement. You should carefully think about where you keep your money and how it can work to benefit you. A 401k with employer match is like free money, but investing in stocks and bonds can often grow your money quickly. Try to allocate investments between safe and aggressive methods to boost your opportunities.
Build Your Assets
Your home and car are assets that will contribute to your overall wealth when you retire. However, you might consider investing in other assets as well. Rental properties, boats, RVs and other items may grow in value over time and allow you to cash out for a higher amount once you are in retirement.
Don’t Siphon from Your Retirement Accounts
It can be tempting to use the money you have saved in your retirement accounts for down payments on houses or cars. However, that may result in stiff penalties from the IRS. There is also an additional tax if you take money out before retirement age. Consider seeking a loan from your bank or credit union instead of borrowing from your retirement accounts. Let your retirement sit waiting for you when it’s time.
You’re never too young to begin saving for retirement. The more you save, the better off you will be upon retirement. Use employer-offered accounts and open your own to start a diversified set of accounts that you can build over time.
A 25-year-old who saves $4,000 per year for ten years with a 10% return rate will have more than $883,000 by age 60. However, if you wait until age 35 to begin saving the same amount, you’ll only accumulate $480,000. Neither amount is shabby, but it would be much more beneficial to get close to $1 million upon retirement.
It’s Never Too Late to Start
Even if you’re close to retirement, you still have an opportunity to begin socking away money for the future. If you’re 55 and can manage to save $12,000 a year and delay your retirement age to 67, you will accumulate $144,000 without assuming an annual return, which could be as high as 10%. That amount could help you supplement your Social Security and other investments.
Consult with a Professional
You wouldn’t ask a friend about a serious medical condition, so you shouldn’t trust your life after retirement to someone without specific expertise. Financial planners can evaluate your specific situation and help you make a plan to reach your goals. They know all of the investment and savings options and can help you diversify in a way that benefits you in the long term.
Get a Second Opinion
If your financial planner isn’t helping you build wealth quickly enough or in a manner that benefits you, seek help from someone else. Like hairstylists, financial planners all do things a little differently. Once you find a planner who seems to make sense and can explain everything to you in terms that you understand, you’ll know you’ve found the right expert for you.
Talk to Retirees
When deciding what you will need in the future, you should speak to those currently living in the situation you hope to achieve. Speak with retirees who are well off and living in the geographic area you hope to retire to. They can help you think of anything you may have missed when making a plan for the future.
Other Professionals Who Can Help
While a financial planner can help you establish a retirement plan, you might need assistance from other experts to manage your current financial situation.
If you are in significant debt and want to reduce that debt before retirement, a consumer rights lawyer can help with debt management. It’s often possible to negotiate your debt down and pay it all off for much less than you owe.
If you plan to move to a new area upon retirement, you should consult with a realtor. They can help you research the area and know how much money you’ll need to buy in the location.
Other experts can also be beneficial depending on what you need while you prepare for retirement.