Every person at the age of 50 needs to start thinking of planning their retirement right. With earnings being the highest at that point, it’s important to take benefits with the best retirement savings plans. It all depends on how well you plan and invest by making optimal use of advance tax savings plans which include 401(k)s and IRAs – only depending on your company pension plan is not a good idea. Here are a few basic checklists to keep in mind while planning your retirement.
1. Calculate your expenses and manage expectations:
Step 1 is to estimate how much will you need to plan a successful retirement. Evaluate all your expenditures and determine you can eliminate or reduce any of those – the thumb rule being that you’ll require 70% of your annual pre-retirement income to live comfortably after retiring. Again, this may vary from person to person based on how they wish to spend their life post retirement, so if you plan to to travel around the world, build your big dream house, sponsor your grandchildren’s education, etc., you will probably need the entire 100% of your earnings.
2. Consider reducing unnecessary expenses:
It’s not just about planning for future expenses, it also involves working on reducing current expenses. First look into your recurring expenses like phone services, magazine/newspaper subscriptions, memberships never used, etc. Secondly, look at eliminating any debts and pending balances. Start accelerating your mortgage payouts so that the loan will be paid off before you retire. By minimizing existing debts and limiting new debts, you can minimize the amount of money spent on interest payouts and increase your overall retirement income. Thirdly, consider reducing your housing costs – shift to a smaller home, give a portion of your house on rent, or maybe move in with another family member?
3. Build up an Emergency Fund and prepare towards uncertainty:
Out of the blue expenses in retirement can deplete all your retirement earnings faster than expected. It could be serious health issues, major home repairs, caring for a family member or other unforeseen costs, Having at least nine months of regular expenses collected in an emergency fund will help ensure that you avoid using assets designated for your monthly earnings.
4. Consider longevity:
An important question while planning your retirement: How long will your money last? There are two parts to this: First, you may be likely to live more number of years than you might have expected. Second, inflation never sits back, so the spending power is on the decline all those years, too. Thus, it’s important to have a proper investment portfolio in place which would balance out the forces and protect you in the long run.
5. Identify Retirement Income Sources:
Retirement income may come from a variety of sources like Social Security, pension, IRA accounts, part-time work and other savings, and the percentage of each may change over time.
The timing of when to use each retirement income source should be considered along with the after-tax benefit of each source of income.
6. Manage your taxes:
Whether you retire early or not, taxes will be a consideration in retirement. Your taxes may come in a variety of flavors – for instance, you’ll owe income tax If you’ll be withdrawing money from retirement accounts such as IRAs and 401(k)s. Also, the Social Security benefits in retirement are taxable if your income exceeds a specific amount. If you continue to work on a part-time basis after your retirement, then any social security that has been claimed by you will be temporarily reduced.