What does retirement mean to you? Do you get perturbed with the idea of hanging your boots as you will not have the safety net of a regular income? Or are you the other kind who can’t wait for those golden years to enjoy a stress-free life? Needless to say, retirement can bring you a lot of freedom to enjoy your life and do what you want to do. Provided you have the money for it.
During your prime years, you may have so many responsibilities like repaying your student loan, buying a house or saving for your children’s education. You may become so focused on saving for these that your retirement fund may take a backseat. However, people are living longer than ever and millennials are considering retiring by the age of 50. In this scenario, it is all the more important to build a security net for yourself while you are earning.
Here are the ways to go about it.
Project your needs
Retirement is different for everyone and largely depends upon the lifestyle you wish you have. As per the Northwestern 2019 survey, 56% of Americans have no idea about the amount of money they will need to retire. It is impossible to save adequately for your retirement if you don’t have a ballpark figure in your mind. Answering these questions may give you more clarity. Would you like to travel a lot after retirement? Do you expect to maintain a similar lifestyle or are you ready to compromise a bit? Do you or your spouse have an illness that may impact your finances? Would you like to continue to work even part-time after hanging your boots?
Calculate your retirement income
After you have projected your needs, it is time to calculate the money you will need. Consider your income sources like Social Security and pension. You will have to save and invest to make up for the rest of your retirement fund. You may also have to consider yearly inflation of 4% to reach a legit figure. To some of you, this exercise may seem daunting. You can take the help of a financial planner if you would like some help here.
Reduce your debt
Do you have your student loan or mortgage looming over your head? If yes, it may be time to prioritize paying them off. Your interest tends to accrue if you hold your debts for a long period of time. Consider paying for your transactions in cash instead of swiping your credit cards. Every penny saved on interest is like every penny earned.
Plan and invest in a portfolio
Your retirement egg nest needs to be diversified. You must invest in several options to hedge your risks and optimize your returns. For instance, some of you may say that stock markets are not your cup of tea. However, equities are known to give solid returns over a wide horizon of time. You must have a balanced portfolio with significant investments in equities, bonds, mutual funds, and other assets. Of course, you must also have some amount of liquidity to take care of emergencies.
Take full advantage of retirement plans
If it is possible, invest in 401(k) to the maximum allowed limit. Your employer will have to match this amount and you can contribute significantly to your retirement fund. If you are over 50 years, you can opt for catch-up contributions to increase your savings. Similarly, take advantage of the IRA and other retirement plans. Some of these plans can also help in reducing your tax obligations.
Invest in real estate
If your finances allow you, consider investing in real estate for an alternate source of income. Work out the rentals and they should be enough to cover your costs of EMIs, tax, and maintenance. Real estate can give your higher capital gains in your later years. You can even sell it and settle at another place with a lesser cost of living.
When it comes to retirement planning, it is never too late to get started. Use these steps to carefully plan for your retirement and maximize your savings to reach a realistic goal.