Retirement, sooner or later, is coming. Are you prepared?
Not only do you deserve to retire happy, healthy, and wealthy enough to live out the rest of your life the way you want to, you deserve to rest assured that your financial future is in good hands. In this short guide, we’ll cover the following:
- Misconceptions
- When you should start planning for retirement
- What to do if you’re starting late
- How to get started planning for retirement
- Additional tips
Misconceptions
There are many misconceptions when it comes to retirement planning. Several of the misconceptions we recognize while helping individuals and families create their retirement plan include:
- “I’ll Spend Less in Retirement”
Almost everyone thinks that they’ll spend less during retirement. The truth is that many retirees start retirement by spending more. After spending decades working hard week after week, you likely have a long list of things you want to do, including going on trips, spending time with family away from home, and purchasing things you’d been holding off on. To retire comfortably, don’t assume you’ll be spending significantly less than you are now.
- What is Enough Today is Enough Tomorrow
The value of your money changes due to inflation. Inflation will impact your buying power, meaning that even if your income remains consistent, it may not go as far as it once did. Taxes, and how they change over time, will also affect how far your retirement income will take you.
- Maintaining Purchase Power > Preserving Principal
We all want to preserve our principal, meaning that we do not want to lose what we’ve already earned. However, explained above in “what is enough today is enough tomorrow,” we lose purchasing power over time because of inflation.
At the standard rate of 3% inflation, you will need double the amount of money at the end of retirement to maintain the same standard of living you started retirement with. This means that investments that feel safe because they protect your principal can actually lose value and prevent you from maintaining the same standard of living because your purchasing power is decreasing. Your investments need to outpace the rate of inflation in order to maintain or improve your purchasing power.
When Should You Start?
Don’t wait until the week before you retire to talk to a financial advisor about creating your retirement plan. While it’s never too early to start, a good time to get serious about investing for retirement is after you have finished planning how to pay for your children’s college education if necessary.
If you feel like you’re starting late, there are several things you should keep in mind as you begin to prepare to get started, including:
- Take advantage of 401k matching plans
- Lower unnecessary costs to increase how much you save for retirement
- Be prepared to work longer before retiring
- Consider reducing cost of living by moving into a smaller space or to a less expensive town or suburb.
Ready to Get Started? Here’s How
Just as it’s never too early to start, it’s never too late either. With the right plan, team, and with commitment, retirement planning can be simple and effective.
Take the following 5 steps to get your retirement plan started:
Step 1: Break down your monthly spending into ‘have to’ and ‘want to” categories.
Step 2: Know monthly and annual totals that you ‘have to’ and ‘want to’ have.
Step 3: Define each retirement income stream (pension, social security, current investments)
Step 4: Understand how your pension and social security streams of income may be affected when a spouse passes.
Step 5: Using this information, meet with a financial advisor to discuss how to increase your retirement income streams in order to ensure both your ‘want to’ and ‘have to’ income will be met after you retire.
Additional Tips:
- Treat retirement saving as a bill. Work with a financial advisor to determine how much you should be saving each month. Then “pay” that amount into your retirement account each month.
- Automate as much of the savings program as possible to avoid acting on emotions and to avoid forgetting to invest.
- Consider health concerns and family history of longevity when planning out how many years of retirement income you will need.
Don’t sit on the sidelines as retirement nears. Every day that goes by without getting closer to your retirement goals, you take a step back. Take a step forward and schedule your Goal Meeting with Blooming Tree Wealth Management. Contact us today!