Retirement planning can be one of the most difficult financial decisions you make during your lifetime. Once you have reached retirement age, it becomes increasingly important to plan for your retirement. Most people who are working end up saving very little for retirement, while the super rich save millions. If you don’t have retirement planning, your money will either be invested in your retirement fund (which can be risky) or eaten up by the market (which can be easy). So what do you do?
Most people fall into the trap of thinking that they should set aside all of their income for retirement planning. In reality, only around 20% of income is actually set aside for retirement planning, according to the latest studies. Retirement planning typically has five basic steps: calculating how much you will need, knowing when to begin, establishing financial priorities, selecting investments and deciding on accounts. In general, the rule is to spend more aggressively early on, and then gradually dial down to a more conservative blend of investments as you near retirement. You can see how quickly your money can disappear if you’re not careful!
If you’re not sure where you are going with your retirement planning, the first step is calculating your income and expenses. Take into account your annual paycheck, both federal and state, take out a loan for retirement, sock away some money into a 401(k) or other type of savings, and maybe invest some of it in some high-risk, high-yield stock or mutual fund. Then figure your insurance and taxes, and make sure you’re age is acceptable to contribute to a retirement plan. If you aren’t planning to use your savings for actual investments, you need to factor in the cost of maintaining your current lifestyle. Are you buying brand new clothes or renting?
The next step to take is to identify your retirement goals – what are you trying to accomplish in retirement? If you want to be able to comfortably afford your final years in the workforce, maybe you want to start out young by taking a retirement plan that buys a set amount of time and takes you from earning a high salary and investing in a retirement account that grows over the years to provide a comfortable retirement income. If your goal is to build up a huge estate plan, then it’s time to work out how you will do that with tax incentives and regular deductions for things like rental income and interest on your primary residence.
Once you’ve determined your objectives for retirement planning, figure out your starting investment amount and stick to it. Some people start off with a small savings and invest it in their main residence or a high-risk, high-yield investment like the stock market. Others prefer to use real estate for their initial investments, with the goal of making enough money to pay taxes at a high rate while living in a comfortable home. Still others prefer to use managed investing services that allow them to invest in a wide variety of investments while building their retirement savings.
Investing in your future with a well thought out, systematic approach can be one of the most important things you do during your lifetime. Choosing the right investment vehicles and making the appropriate investments for your specific financial goals will ensure that you have an enjoyable retirement period after all is said and done. This approach retirement planning ensures you don’t waste time building an estate to live in after retirement and living the way you want to live.