6 Actions to Take Now for a Successful Retirement Later
Do you think it’s too soon for you to start planning for your retirement? Well, think again. According to the U.S. Department of Labor (DOL), the average American spends roughly 20 years in retirement. In order to enjoy a fully funded and worry-free life in retirement, the time to start planning is now. Not sure how to get started? Try these steps:
Like we said, the sooner you start preparing and saving for retirement, the better. The earlier you start, the more time you will have to save—and the less money you will need to put away each year. Plus, if you establish good habits now, it will be easier to maintain them in the future.
What if you’re not as young as you once were but you haven’t started preparing for retirement yet? Keep calm. It’s never too late to get started. No matter your age, today is the best day to start preparing for retirement, if you haven’t already.
Determine Your Retirement Spending Needs
Less than 50% of Americans have calculated how much they need to save for retirement, according to the DOL. If you want to have a successful retirement, don’t be part of that group. It is important to calculate how much money you’ll need during retirement and to do so as thoroughly as possible.
There are two popular methods for calculating your spending needs in retirement:
- Aim for 80% of your current income, or
- Base your calculation on your current spending.
In order to further refine your spending needs, ask yourself the following:
- At what age are you planning on retiring?
- Where do you anticipate living once you retire?
- Will you be supporting any family members or other dependents financially?
- Do you plan on working in retirement?
- What are your expectations about how much you’ll spend on travel or hobbies?
- Do you anticipate large health expenses, considering your family health history?
All of these questions and more should be part of your consideration as you seek to determine your likely retirement spending levels.
Once you’ve come up with an approximation for your yearly retirement spending needs, multiply that number by the number of years that you expect to spend in retirement. According to recent U.S. Census data, the average length of retirement in the U.S. is 18 years. That said, you should consider planning for a longer-than-average retirement in order to ensure that your savings last.
Understand Social Security
There are a lot of factors that impact how much social security money you will collect in retirement. For example, the age at which you start collecting social security will impact the amount of your benefits. If you delay collecting for as long as is allowed, you can receive up to 132% of full benefits. Conversely, if you start collecting sooner, it’s possible you would receive less than 100% of full benefits.
In order to help you understand your possibilities, the Social Security website offers a handy estimator tool. Check it out to learn what factors impact your benefits and get an idea of how much you will collect in retirement.
Make a Plan
Once you’ve determined the amount that you will need to fund your retirement, it is time to make a savings plan. There are a wide variety of factors to consider, including investments, assets, debts, and more. It is easy to find a retirement calculator online that you can use to help you determine how much you need to save each year in order to reach your retirement goal.
If you haven’t already, consult a retirement advisor at this stage of your planning. Find a financial advisor who fits your needs and can help you prepare for retirement. Be sure to present them with your retirement spending estimate so they can let you know if you missed anything big. Make sure to ask them any questions you’ve encountered throughout your retirement planning.
Once you have a plan in place, be sure to stick to it! Your plan is no good if you don’t follow it, after all. Of course, you may run into snags or obstacles along the way. When this happens, be sure to consult your financial advisor in order to help you get back on track.
Be sure to take full advantage of the retirement vehicles available to you, such as an employer’s 401(k) plan. Definitely make sure that you are contributing at minimum the amount that your employer matches if that is a benefit that they offer.
Another key item in this area is that you should avoid touching your retirement savings if at all possible. Early withdrawals from retirement savings often come with hefty penalties. When you add these penalties on top of the money that you withdraw from your retirement savings, you’ll see a big hit to your fund.
Regularly Review Your Plan
Life is unpredictable, so you should anticipate performing regular reviews of your retirement plan. Evaluate whether you are on track and update your strategy if you find that you are not. Consider scheduling a yearly review with your financial advisor in order to keep your goals in sight.