The thought of retiring can be a terrifying prospect. Think about it: it's practically decades of unemployment, assuming you don't work at all during this time, with a set of potentially unknown expenses, such as repairs to the old house or medical expenses that exceed expectations.
If you had thought about all these and more, you are not alone. But here are some steps you can take to alleviate these concerns and manage retirement with much more confidence.
• Retirement planning should include estimating expenses, determining time horizons, calculating after-tax receivables, assessing risk tolerance, and planning assets.
• Start planning today to take advantage of the power of compounding.
• Young investors may take more risks with their investments, while investors closer to retirement should be more careful.
• Pension plans have evolved over the years, which means that the portfolios must be rebalanced and updated as necessary.
Getting an estimate of what retirement may cost you is a good way to getting the peace of mind when you eventually retire. As you get closer to retiring, take some time to think about where you want to live, whether you want to own a house or rent one, and what you will do with your new free time. So do your research to see how much your lifestyle will cost and to find out how much your monthly and yearly income will be. From there, you will be better equipped to assess your savings and, if necessary, adjust your plans.
For instance, you may find that to support the lifestyle you expect, and you will have to work and save two more years.
Boost your savings: General Savings and Health-Related
The more money you have in your savings when you retire, the more you have to pay your bills. The good news is that popular pension plans, such as IRA and 401 (k) accounts, have provisions for taking care of older workers, so if your savings need a late boost, this option is on the table.
For the current year, anyone 50 years of age or older can save up to $ 26,000 in a 401 (k) or $ 7,000 in an IRA. The limits for young workers are $ 6,000 and $ 19,500, respectively. If you are 401 (k) and have been retired for five years, reaching your current maximum level will leave you $ 143,668 more than what you have already saved, assuming your investments will generate a relatively conservative annual average of 5% during this period.
But don't maximize your IRA or 401 (k); maximize your health savings account or HSA if you are eligible to participate. You can contribute up to $ 3,550 this year on your behalf or up to $ 7,100 on behalf of your family and, if you are 55 or older, you can add $ 1,000 to the limit you already qualify for. And, as a reminder, HSA funds do not expire; therefore, you can withdraw them and use this money as a dedicated source of healthcare costs.
The more money you get from Social Security, the more financial flexibility you will have as a senior. There are diverse things you can do to increase your profits. On the one hand, you can apply for it after the full retirement age, which is 66, 67 or more, depending on the year of your birth. Each year, your benefits are deferred, and it will continue to increase by 8% until the age of 70, the date on which these increases will be stopped.
You can also increase your retirement benefits by striving for future career growth, as your income is directly related to the amount of money you are eligible to earn as a senior. You can also increase your profits by extending your career a little. Benefits are based on 35 years of paid work. If at the last part of your career, you earn more than before, you can replace a few years of lower-income with higher income to increase the monthly retirement benefits to which you are entitled.
It's natural to be skeptical about leaving the workforce and retiring, but instead of spending your day worrying about it, budgeting for the next few years, saving money and getting the best out of your social security can save you a world of stress and can help you take advantage of the time when you retire and prepare for the life after that.
More than ever, the task of retirement planning is on you. Few employees can count on a retirement pension defined by the employer, especially in the private sector. Switching to defined contribution plans, such as 401 (k) s, also means that managing your investments becomes your responsibility, not an employer.
One of the difficult aspects of creating a complete retirement plan is finding a balance between realistic expectations of return and the desired standard of living.
Freddie Cook, CPA