You know you need to start planning for retirement. Do you have a plan, and, most importantly, are you following through on that plan? If not, what’s stopping you? Stop procrastinating with your retirement financial planning, because you’re only hurting yourself.
The thing about financial planning for retirement is that you really don’t know exactly when you will retire. Some people work for 30 years, get the gold watch and retire down to Florida. Others end up bagging groceries to barely make ends meet.
Secrets To Successful Retirement Financial Planning For Retirement
Some people are on the right track, but an injury or illness stops their ability to work long before they planned to quit. Now, they are faced with some very difficult decisions and very limited options. So, to begin, the best retirement financial planning advice we can give is to do everything you can to take control of your retirement planning while you still have the most options.
According to many successful financial planners, here are the step you definitely need to take in order to help protect your financial future.
-
Set A Goal And Stick To It
One of the sure-fire ways to fail at financial planning for retirement is to operate without a goal. This cannot happen if you want to protect your financial future. You need a goal and you need one now. So, sit down and list out your specific retirement goals. Look at where you want to be, what you want to do, how much that will cost and what it will take to get there.
As far as how much you may want, look at how much you are spending now, and consider what it would take to bring in about 70 percent of that. Now, remember, several decades from now, your money won’t go as far as it will today, so get as close to fully replacing your income as you can.
-
Plan To Live Within Your Means
As you approach retirement, you may want to downsize some. Do you really need a large house and a matching mortgage? Plan to live within your means. Don’t end up having to go back to work just to cover a home equity line you used to pay for repairs to a big, old house you no longer use.
The basic idea here is to have enough coming in to do what you want to do, go where you want to go and learn what you want to learn. Don’t let debt rob you of joy in your retirement years.
-
Keep The Accounting Simple
Far too many people make the mistake of spreading their retirement funds out into too many accounts. Not only do you lose out on accrual that comes from higher balances, but you also lose time dealing with all those different accounts, possible fees, etc.
Now, we’re not arguing that you should have all your eggs in one basket at all. We advise against the opposite extreme. Just as one example, think of how many times you’ve changed jobs. Did you leave your 401 K there or take it with you? You might want to check on that.
-
Put Yourself Before The Kids
Yes, we know this sounds harsh on the first read, but understand, this is something you must do if you want to be successful with financial planning for retirement. Sure, you want what’s best for your kids, we all do. But, really, in this case, what’s best for them is for mom and dad to have their financial affairs in order.
The 5 Biggest Mistakes People Make When Financial Planning For Retirement
With all the planning needed for retirement, wouldn’t it be great if people could call up a retirement planner? But, there isn’t such a profession called “retirement planners.” What does exist are what are called certified financial planners, who can help with retirement planning.
Here are 5 of the mistakes they see people making when they plan for their retirement:
-
No Goal
Estimating how much money will be needed can be tricky, but that doesn’t mean one should go in blind. That is a real recipe for disaster. Many people save for retirement without any particular financial goal in mind, which can keep them behind and they come up short when it’s time to retire from their career.
To estimate how much money will be required after retiring, think about how the income that will be needed to “replace” each year the person is retired. Most people should aim for around 70%, they will not be splurging nor living on a tight budget. There are many online retirement calculators that will help people figure out how much they will need to sock away, based on how many years they have left to work.
-
Procrastination
Nobody really wants to think about planning for their retirement, there’s no bigger advantage than starting early. Financial planners recommend opening an account as soon as possible, setting up an automatic contribution from a paycheck, no matter how small. Make sure to continue increasing contributions by setting a monthly, biannual, or annual reminder to increase the amount by another percent or two.
-
Approaching Retirement with Home Costs that are Unaffordable
Entering retirement with a mortgage isn’t a bad thing but entering retirement with a mortgage or even a home equity loan that’s unaffordable is a potential disaster.
Massive debts such as a home equity line of credit tend to make covering retirement costs hard, as retirees with this much debt need to set aside a lot more money than someone who has paid off all their other major loans to pay down their housing costs. It is recommended to tackle a home acuity loan before a mortgage loan because the interest rates tend to be higher.
-
Being Unaware of an Employer Match
Some employers offer “matching,” where they match a percentage of the amount an employee contributes to an employer-sponsored retirement plan. Essentially, the employer is paying an employee to make a smart financial move. If they offer this incentive and the employee is not taking advantage, it is perhaps because the employee isn’t aware of it. Think of this missed opportunity as turning down free money.
-
Choosing an Incorrect Tax Strategy
In the case of retirement savings, people must pay taxes. It’s generally better to pay now rather than later. That’s because, with post-tax contributions or paying now, taxes are paid on the amounts contributed today. With pre-tax contributions, or paying later, taxes are paid when the money is withdrawn years down the road. Plus, there is more tax on the interest it’s earned.
Retirement planning is successful with some well-planned and timed actions on the part of the people who are investing for their retirement years.
Wisdom From Top Financial Planning Consultants
Financial planning is hard. There are a lot of foreign terms, a lot of variables and many applicable laws, statutes and limitations. But financial planning is also very necessary, especially if you want to live a balanced and comfortable life. So, since most of us are not born knowing everything there is to know about financial management, we seek the advice of certified financial planning consultants. Here’s some of their best advice at any age, whether you are planning for retirement or just getting started(which is the best time to start financial planning for retirement).
Step 1: Create A Written Plan
Every time you sit down with financial planning consultants they will want you to develop and stick to a plan. There are simply too many variables and decision points to operate without a fully-fleshed-out program designed specifically for you.
Your personal program should include a spending and savings plan, as well as a budget and a list of your specific short and long term goals. A good plan will take care of everything you need today and in the future. The best plan will give you both control over your cash flow today and enough to last you in retirement.
Step 2: Pay Yourself First
Never, ever pay your bills without putting some aside for yourself first. Ideally, you will take 10 percent of your income and put it in savings and another 10 percent in retirement accounts. Use a payroll deduction to invest in a 401K and/or invest in a post-tax Roth IRA and/or mutual funds. Think of that money as “gone” and learn to live on 80 percent of your income.
Investment accounts do two good things for you financially. First, they put money away for your eventual retirement. Second, they reduce your tax burden year after year.
Step 3: Get Out Of Debt
This is absolutely vital if you want to build a sound financial future. Debt eats at your net worth each and every month. Sure, you might be able to “afford” to carry some debt. But why would you want to? That money could be put to so much better use.
Just consider all the cash you currently pay toward credit cards. You could be putting that in a retirement account or into mutual funds. You could even be blowing it on vacations or chocolate. Anything but paying interest on stuff you don’t remember buying.
Step 4: Understand Your Risk Tolerance
Now that you’re out of debt, it’s time to really start investing for retirement. Mutual funds, over time, can offer a tremendous investment opportunity. Thing is, investments of this kind comes with certain risks. You need to understand what your risk tolerance is before you invest.
Risk tolerance is basically the amount of risk you are willing to take for a certain amount of return. You might be willing to risk a bit more or a bit less, there’s no right or wrong here. The key is to find out what’s right for you, as well as what will help you reach your goals.
Step 5: Track Your Credit
Your credit score is an important financial planning tool, but you do not need to pay financial planning consultants to look after it for you. Even more important than keeping track of your credit score, you need to keep track of your credit report. Make sure everything on the report is always accurate, current and reflected properly. And, if you have bad credit, don’t just give up. Get current, stay current and watch your score start to rise.
