Retirement seems far away when you are in your 40s, but by the time you hit your 50s, that distance starts to get closer and closer.
That means time is of the essence. This is the point in your life, where you need to focus on planning for retirement. This is the time for you to visualize your future, and form a road map for your upcoming retirement years.
So if you are that person nearing or already in his 50s, here are seven things you should consider when planning your retirement.
Retirement savings should be your number one priority. You need to have a specific and realistic number for the amount of money you will need to meet your expenses when you retire.
Having a target number helps determine how much you need to save to achieve your goal. This can be done using online retirement calculators. By examining your current savings and investments, they can help establish the income you may receive upon retirement.
However, keep in mind that the overviews provided by these calculators are highly speculative. Most online retirement calculators do not exactly factor in taxes. This means that the results can have a huge difference.
To get a more comprehensive estimate, it is better to seek the advice of an experienced retirement planner.
Note: If your retirement savings are in either a traditional 401(k) or IRA, you may be unable to access your own savings until your 59. Withdraw them sooner, and you receive a penalty charge for each distribution you acquire.
People usually get the chance to earn more during their 50s, but this would also mean more taxes. A financial advisor may help you identify ways to lighten your load on taxes, which would allow you to save more for your retirement years.
Would-be retirees should not overlook the Roth IRA, as they contain after-tax dollars. This means that you can withdraw your contributions from your Roth IRA account any time without penalty or taxes.
If you intend to use Roth IRA for early retirement, max it out from now until you retire from the workforce.
Employer Matching Opportunity
If your employer offers matching, you might want to ensure that you are maximizing its full potential.
Employer matching of your 401(k) contributions is the process that involves your employer paying a specific amount of money to your retirement savings based on how much you contribute every year.If you are contributing 6 percent of your $50,000 salary to your 401(k), for example, and your employer matches $0.50 to $1.00 up to that 6 percent. That means you will be putting $6,000 from your salary, and your employer will add an extra $3,000, giving you an annual boost of $3,000.
The boost will not raise your tax bill, since matching contributions are not taxed until you withdraw them in retirement.
Employer matching usually lasts for three or four years. This indicates how long you have to continue working for the company before you can obtain all the matching funds.
Note: This is also the point in your life when you should be considering maxing out your retirement accounts and savings as much as possible. If you are already maxing out your current accounts and still intend to save more, you can always open another accounts.
People over 50 who were unable to contribute in the previous years have the chance to make a catch-up contribution.
Catch-up contributions are retirement savings contributions that offer individuals over the age of 50 the opportunity to make additional contributions to their 401(k) and / or individual retirement accounts. The amount of catch-up contribution can vary depending on the kind of retirement account you have.
As with other retirement contributions, catch-up contributions have their limits as well. These limits grow over time, usually every year or every other year. Employer matching is not included in these limits.
For a 401(k), 403(b) plan, governmental 457(b), and SARSEP, the limit is $6,000. SIMPLE-401(k) and SIMPLE-IRA have a contribution of limit of $3,000.
One quick way to save more is to spend less. Spending too much too soon is not good. If you want to know where your money is going and keep track on it, then you may want to start budgeting.
It is more crucial now than ever before to not let your expenses hinder your retirement savings plan. Changing your current lifestyle to one that have a much lower cost is a good way for you to save more, as this could allow you to lessen expenses to maintain your lifestyle in retirement. Do not forget health insurance expenses when you are budgeting. Examine the healthcare costs that you are likely to get in retirement before you make any official plans, especially if you plan on retiring before you reach the age of 65.
Work out not only your basic needs, but the things that you want to do during retirement as well. Having a firm goal for your retirement years is a good motivator for you to effectively save for the life that you would want to have when you retire.
You can also seek the help of a financial advisor if you need further assistance.
Review Your Plan
Not taking a second look with your retirement plan can have one disadvantage. A plan made way back before retirement might not be as thorough as what you actually plan once you retire.
As stated above, take into consideration what you will be doing in your golden years. Compare that scenario with the one you based your plan on. Are they similar? Or is the second version considerably more or less expensive than the first?
Not sure where to begin? Here are some Important Steps to Build and Develop the Best Investment Plan to get you started.
Now is the time to invest and save. Not the time to speculate. Know about building an investment portfolio, and then try to create your own. Make one that suits your goals and risk tolerance.
Always remember that there is no such thing as a risk-free or perfect investment. There is no investment that guarantees profit without any risk. The best option that you have is to own a portfolio that contains a variety of investments with different levels of risk.
Higher returns mean greater risks. Read 10 High Yield Investments Risk Takers Should Consider to know more about it.
Moreover, while taxes are a vital factor in portfolio management, do not get too absorbed in your profits. You could end up handling a portfolio that is riskier than you need. Instead, find positions with big returns and downsize to reduce risk in your portfolio.
What if you have significantly fallen behind?
If you were unable to plan and make contributions by the time you are in your 50s, then that might be a problem. You may have to deal with a tight retirement planning. Even so, with the right plan and major budgeting, you still have the chance to recover your retirement.
In the event that you have fallen way behind with your retirement plan, here are some things that you could do.
- Start contributing as much as possible to your retirement savings accounts right away.
- You might have to scale back on your plans, as you need to keep your spending in check once you retire, given that you had a late start.
- You may need to find some additional sources of income, if your retirement savings are not enough. It has been proven that working at least part-time can improve not only retirees’ income, but their mental and physical health as well.
If you are no more than two decades away from your possible retirement, then it might the right time prepare for it.
As a general rule, if you want enjoy retirement, figure out how you could reduce your expenses. Lowering your expenses help you to have more retirement funds accessible to spend on something that you enjoy.
Once you have the funds that you need, you must be certain that your retirement purpose is as important as having the money.
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