Simple Retirement Planning Tips
Wealth management doesn’t begin and end with your time as a full-time employee.
Wealth management doesn’t begin and end with your time as a full-time employee. You also need to prepare for your retirement years, which is when financial success is of the utmost importance because you don’t have a steady income stream. The following five tips can help you prepare for your post-working years:
- Understand your retirement needs – One of the most important tips for retirement success is to understand what you’ll need in order to remain happy, according to the U.S. Department of Labor. For example, if you’re living a certain lifestyle you don’t want to give up, you’ll have to save enough to continue that after leaving the full-time workforce. Experts estimate you’ll need at least 70 percent of pre-retirement income to maintain your standard of living. Keep this percentage in mind when saving for retirement, as any less could leave you in a tough predicament.
- Take advantage of employer-sponsored accounts – To save for retirement, you’ll want to do more than just put money in a piggy bank. Individual retirement accounts and 401(k)’s can be useful tools to help reach your retirement goals. In fact, some employers offer matching contributions, which can essentially provide you with free money. According to USA Today, many businesses offer a 3 percent match on your first 3 percent contribution. This means if you deposit 3 percent of your check into a 401(k) your employer will do the same. Matching contributions are a great way to build your retirement savings without having to do anything extra.
- Pay off high-interest debt – Retiring with high-interest debt is a major mistake. Without a steady income, making payments on your balances can take money away from other essential expenses. That said, if you have any high-interest credit cards with a lot of debt, you should pay them down before leaving the full-time workforce. Other debts you should get rid of include personal lines of credit and auto loans. It isn’t ideal to have a mortgage in retirement but in come cases it is unavoidable. Sitting down with a financial expert is a good move if you have a significant amount of debt, as these professionals can help you come up with a plan to rid yourself of high balances.
- Don’t touch retirement savings – If you find yourself in a tough financial spot it can be tempting to dip into retirement savings to help out. However, this is detrimental to your future, as withdrawing from retirement accounts has many negative downfalls. For example, you’ll be charged early withdrawal fees. You could also incur income taxes if contributions were pre-tax. In addition to potential fees, you’ll also set your savings back. If you withdraw enough money from accounts you could be forced to work longer than you had hoped to make up for the lost funds.
- Understand Social Security benefits – It isn’t recommended to heavily rely on Social Security for retirement income but it can be a good supplement to what you have saved. Fully understanding the scope of the benefit is important when preparing for retirement. It pays you the average of around 40 percent of what you earned before retirement. The earlier you tap into the benefit, the less you’ll receive each month. Ideally, you’ll put it off until the age of 70, as this is the age when you get the largest amount.
Retirement is supposed to be a time when you can enjoy not having to work from 9 to 5 Monday through Friday. If you follow the above retirement planning tips, you’ll be better prepared for the financial challenges that come with life after a full-time job.