World Financial Planning Month: How to Plan for Retirement

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In the United States, retirement planning is an important part of becoming financially secure. Government programs, including Social Security and others, can help ease the financial burden of retirement. But still, a significant savings of your own is important, and many Americans worry that they won’t have enough income to live in their retired years. To help make sure you’re prepared, we’ve rounded up everything you need to know about planning for retirement.

Think of this as your go-to retirement guide for what age to start planning how to invest your money. Let’s make sure your golden years stay golden.

Is Planning for Retirement Important?

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Planning for retirement is one of the best things you can do for yourself financially. Whether you’re 25 or 55, it’s never too late or too early to start saving for retirement. If you retire at 65 and live 76.1 years (the national average life expectancy), that’s just over ten years of income that you’ll want to have saved. Many will expect to live past this national average and will want to save more. While some Social Security is available for many, will it be enough?

You also need to factor in early retirement and the cost of health care and aging. Additionally, you may have a spouse or partner eventually retiring, too. The sooner you start planning for retirement, the longer you have to save money. For example, saving just $1 a day for retirement over 20 years adds up to $7,300. That’s not counting any money earned through investments. Saving that same dollar for 40 years becomes $14,600. So you can see how it’s not always about how much you save. It’s for how long.

If you wait until you’re almost ready to retired to start planning, you’ll have a lot more catching up to do. Not only does planning allow you to control your fixed income, but it also allows you to earn more income during retirement. Investments are a great way to earn passive income while you’re out of the job market. These are just some of the many reasons why planning is so critical.

Who Should Start Planning for Retirement?

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If you’re wondering who should start planning for retirement, the answer is everyone. Everyone will reach a point in their life where they are unable to work. Whether it’s because of age, health, or other reasons, everyone will leave the workforce later in life. The sooner you start planning for that leave of absence, the better. While you may not know when you’d like to retire when you’re a young adult, you can start getting the wheels in motion. Your 20s is the best time to start planning for retirement because you have your entire working career ahead of you.

If you’re overwhelmed by your options or where to start, begin with your workplace. If you have a job that offers a 401(k), join the plan and start maxing out your contributions. If you don’t have a 401(k) plan, look into investing in your own self-employed plan.

In your 40s and 50s, you’ll want to start planning more retirement logistics. Maybe you’re thinking about where you’d like to retire or when. Many people choose to retire in their 50s. If that’s your goal, you’ll want to start planning out the details as soon as possible. As you near your 50s and 60s, you’re likely putting your plan into high gear by selling real estate, moving, living off investment accounts, or retiring from your career and taking a low-stress job you enjoy more.

In your 60s, you also become eligible for Social Security and other government health care options such as Medicaid and Medicare. These programs are designed to give you health care and supplemental income when you leave the workforce. If you’ve been receiving a salary and paying Social Security taxes, you’ve been contributing to your Social Security income your entire career. This calculator can help you estimate how much Social Security income you’ll be eligible for by what age.

Creating a Plan for Retirement

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To start creating a retirement plan, make achievable short and long-term goals. For example, an immediate goal may be to sign up for your 401(k) plan. A long-term goal may be to have $500,000 invested in a retirement account by 40 years old.

You can have a long-term goal, such as retiring at 60, with relevant short-term goals along the way. A potential short-term goal could be to pay off your mortgage in your 50s so that you can live mortgage-free later in life.

Retirement is a long-term planning process. First, have regular check-ins with yourself and your partner or spouse to see how you’re tracking. Then, if you have a financial advisor, schedule a meeting once a year to look at your goals and make changes.

What is a Good Monthly Retirement Income?

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When it comes to how much retirement income you’ll need, this answer will look a lot different for everyone. However, a good rule of thumb is that you’ll need about 80% of what you earn now during retirement. Some of this income may come from Social Security, while the rest will likely come from a 401(k) plan and other investments.

If you’re doing some quick math, you probably realize that Social Security may not cover your lifestyle in retirement, so having a plan for saving and investing is critical.

Investing Methods for Retirement

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From a 401(k) account to old-fashioned savings, there are a lot of ways to invest in your retirement. In addition to a 401(k), you can also open an Individual Retirement Account (IRA) or put money into a mutual fund. Each of these is a stock market-based investment plan aimed at long-term growth. Investing in these during your 20s, 30s, and 40s will pay off big time during retirement.

If you have a financial advisor or enjoy investing in the stock market on your own, stocks are another easy way to grow your money. Outside of the stock market, real estate is another common way to invest in your retirement. Real estate can be a lucrative way to save and earn money later in life, whether it’s your primary residence, a second home, or investment property. You can own rental properties and earn passive income.

Start Planning for Retirement Today

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Saving for your retirement fund early is one of the best things you can do for yourself later in life. No matter how old you are, every penny saved for retirement is helpful and aids in your sense of long-term financial security. Remember that goals and plans can always change, so stay flexible and realistic with your goals. Check in with yourself, your family, and your financial advisor regularly to ensure you’re on the right path.