Financial planning for retirement is crucial to ensure you have enough money to live comfortably after you stop working. The sooner you start planning the better. Here are some tips to get started:
Determine your retirement income needs. Calculate how much money you need each month to pay for essentials like housing, food, and healthcare in retirement. Factor in inflation and taxes. The average 65-year-old couple today will need at least $285,000 to cover medical expenses in retirement.
Save as much as possible in tax-advantaged accounts. Contribute enough to get any matching from your employer. Increase contributions by 1% each year. Traditional IRAs and 401(k)s allow your money to grow tax-deferred. Roth accounts let you withdraw money tax-free in retirement.
Consider annuities and other guaranteed income sources. Annuities provide guaranteed income for life. They are low risk but often have high fees. Other options include delaying Social Security benefits which increase each year you wait until age 70.
Invest in the stock market for higher returns. Keep enough in cash for short-term needs but invest the rest in a balanced portfolio of stocks, bonds, and other assets. The stock market returns an average of 7% annually after inflation. Let time work for you through compounding.
Plan for healthcare costs. Medicare does not cover everything. Factor in premiums for Medicare Parts B and D, plus out-of-pocket costs. Consider supplemental Medigap coverage or Medicare Advantage plans. Medicaid can help if your income and assets fall below certain limits.
Account for long-term care costs. The average 65-year-old has a 50% chance of needing long-term care at some point. Home care and assisted living can cost tens of thousands per year. Look into long-term care insurance or self-insure by saving additional funds in an investment account.
Review and rebalance your accounts regularly. Check up on your retirement accounts at least once a year to make sure your money is allocated properly between different investment options based on your financial goals. Rebalance periodically to maintain the target allocations.
Meet with a financial advisor. A financial advisor can give you a comprehensive retirement plan customized to your unique situation. They can help you with complex decisions around Social Security, annuities, tax planning, and estate planning to optimize your retirement savings.
Consider downsizing or relocating. If your current home costs too much to maintain in retirement, consider downsizing to free up equity or relocating to an area with lower living expenses. The proceeds from downsizing can provide income and reduce or eliminate your mortgage payment in retirement.
Stay socially active and connected. Social interaction and an active lifestyle are vital to healthy aging. Look for ways to stay active in your community by volunteering or engaging in hobbies and social groups. Strong social bonds and physical activity help combat isolation, depression, and cognitive decline as you age.
Plan your estate and review beneficiaries. Make sure your assets are distributed according to your wishes after you pass away. Review the beneficiaries listed on accounts like IRAs, life insurance, and annuities and update as needed. Meet with an estate planning attorney to draft key documents like a will, living will, and powers of attorney.
Review and revise your plan regularly. Revisit your retirement plan at least once a year or when there are major life changes. Make adjustments to your savings, investments, insurance, and estate plans to adapt to changing circumstances and ensure the best outcome in retirement. Staying on track with reviews and revisions will help you achieve your retirement goals.
