Approaching your retirement years is both exciting and overwhelming. You can’t wait to pursue those long-lost hobbies, but the idea of managing finances is downright scary.
Not sure where to begin? Here’s a step-by-step guide you can follow to plan your retirement life:
Step 1: Determine Your Ideal Retirement Life
First off, how do you imagine spending your retirement years? For some people, it’s lounging on the beach, reading a book, and listening to the waves crashing at the bank. For others, it’s traveling the globe and trying new foods. And for many, it’s taking up official grandparent duties. Taking a moment to envision will help you plan accordingly.
Also, think about your preferred retirement age. Do you want to retire early, at 50 or 55, and invest to keep a sustainable income? Or are you content working into your 60s or 70s? Your preferred retirement age impacts how many working years you have left to save.
Step 2: Estimate Retirement Expenses
Once you’ve established the kind of lifestyle you want post-retirement, figure out the amount you need to sustain it. The pattern of income and spending significantly changes once you retire.
There are two types of expenses you need to think about:
Essential expenditure – these are your basic living needs, such as housing (rent or property taxes), utilities, groceries, healthcare, and insurance.
Non-essential or discretionary expenditure – this is the money you spend occasionally, such as travel, leisure, eating out, shopping, and holidays.
Inflation is a crucial factor to consider. A comfortable lifestyle today might cost significantly more in 10, 20, or 30 years.
Assess your current spending habits and consider how they might change. For instance, the cost of commuting might decrease, but others, such as medical care, may increase.
Step 3: Work Out Your Retirement Income Sources
The next step is figuring out how you’ll manage retirement expenses. The biggest source is your pension benefits. This often kicks in at the age of 60 or 65, but it’s best to check in with your scheme. The amount will also depend on your salary and how long you’ve worked at a company.
Next, there are different retirement savings accounts. Consider the following options:
Individual Retirement Account (IRA) – It is offered by the U.S. government for employees. You can contribute up to $7,000 to an account. Types include traditional IRA, Roth IRA, and Spousal IRA. You can also look into IRA promotions to ensure tax-advantaged retirement savings.
401(k) Plan – It allows employees to contribute a portion of their monthly income to an individual account.
Seek advice from reliable savings platforms, such as SoFi Invest, to diversify your retirement portfolio.
Step 4: Consider Healthcare and Insurance
Healthcare costs tend to increase significantly after retirement, so proactive planning is essential.
Start by building an emergency fund solely for healthcare costs. This will make sure you don’t dip into your savings account in case of an emergency.
Next, consider supplemental insurance or a Medicare Advantage plan. You can also explore long-term care insurance to cover extended illnesses or assisted living.
Photo: Freepik via their website.
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