A flawless retirement plan doesn’t happen on its own. It calls for effective planning and commitment and, above all, the right utilization of money. Why? Simply because many of us don’t know what we are doing now and where we will end up during the golden years of life. The statistics speak for themselves.
In the US, more than 50% of working professionals are unsure about how much they need to save for retirement. More than a quarter of private sector workers in 2020 reportedly didn’t opt for a defined contribution plan, like a 401(k). What’s more, the average American is known to spend only 20 years of retirement, and most aren’t sure whether they will ever make it to retirement.
From social security benefits to enlisting a trusted retirement custodian, active retirement planning is a necessary habit to live with. Here are five ways to make your retirement blissful.
Stick to the Basics of Investment
Your style of saving money is as important as how much money you save. Let’s understand this better. Two things determine how much you will end up with for your retirement fund. The first is inflation, and the second is investment type. So, it’s important to know how and where your retirement savings money is invested. Make a point to learn more about the investment plan you have signed up for.
Retirement can be expensive. Industry experts believe most people would require at least seventy to ninety percent of pre-retirement income to maintain their current lifestyle. So, it’s always important to set your goals and put your money into a retirement savings plan accordingly.
Often, diversification holds the key. When you save money by contributing to different types of investments, you readily mitigate risks and increase your chance of high returns. However, it’s only natural that your investment mix changes over time. As you age, priorities in life change, and so do your financial circumstances.
Pro tip: Always save money. Start early, and no matter what, always stick to your goals. Start small and keep increasing as you get comfortable with your finances. Remember, when you start saving early, you give more time for the money to grow in your retirement fund.
Always Contribute to an Employer’s Retirement Plan
Does your current employer have a retirement plan, like a 401(k)? Well, you’re in luck. Contributing to an employer’s retirement plan means you will have automatic deductions and significantly lower tax returns. If you do the math over ten years, the tax deferrals and compound interest together will make a huge difference.
Pro tip: Find out how much an employee needs to contribute towards the employer’s retirement plan to avail full benefit. Also, figure out how long one needs to opt for the plan to get the funds.
Never Touch Your Retirement Funds
The math here is simple! You withdraw your retirement funds, and you lose out both on principal and interest. For some retirement plans, you also lose significant tax benefits and may attract an early withdrawal penalty.
Pro tip: It doesn’t matter if you switch jobs. Always leave maximum savings invested towards the current retirement plan. Alternatively, you can always roll it over to an IRA or merge it if the new employer has a retirement plan option.
Don’t Stay in The Dark About Your Social Security Benefits
Reportedly, Social Security retirement benefits are known to replace almost 40% of an individual’s pre-retirement earnings. So, use the retirement estimator option on the official website and draw up an estimate of your benefit as early as you can. If you need more clarity, reach out to their helpline number.
The Bottom Line
When it comes to retirement planning, you can never have enough. That’s why you must have a clear vision right from the start. Sure, when you are young in your first job, there are less things to worry about. However, soon, life will get a grip on you, and your situation will change. With marriage, kids, and mortgages, retirement planning can seem like an odd dream. That’s when you will need to mull over these tips. There will be multiple scenarios when you will be clueless about the next step. However, you should never hesitate to ask questions, no matter how stupid they sound. That way, you will have a better perspective to plan your retirement.
