People are usually scared of retirement because they are uncertain about how their lives will turn out when they are no longer working actively. This is mostly the case for those who fail to prepare for life in their golden years. You’ll need to build a financial cushion in order to have a secure and comfortable life after retirement. This article will show you important steps to take when preparing for retirement.
Set Clear and Measurable Retirement Goals
It’s important to set self-determined and measurable milestones on your journey to retirement. Before setting such goals, determine your anticipated lifestyle and sources of income, estimate your potential retirement expenses, and look for ways to manage your financial risks.
The amount of time you have until retirement is a crucial factor in setting retirement goals. Generally, it’s best to set your goals early, possibly in the beginning years of your professional career. If you have a long time, you can set goals with risky investments that could potentially earn you more money in the long run. If you are starting your retirement preparation at a later age, you may want to set goals with low-risk investments so you can set aside money in a more predictable way.
Take Advantage of Retirement Accounts
Try to choose the right retirement accounts for you. You can take advantage of a 401(k) account, 403(b) account, or a similar account if your employer offers one. Although both work in a similar fashion, major corporations usually offer 401(k)s, whereas public schools and charities often use 403(b) accounts. These types of accounts offer you an immediate income tax break since your contributions are deducted from your gross income, and the saved funds are not subject to income tax until you start withdrawing from them.
Your employer has the option to match your investments up to a specific amount. For instance, if you contribute up to 4% of your annual income, your employer can match that amount and deposit an equivalent sum into your retirement savings. If that happens, you’ll be getting a 4% bonus that accumulates over the years. You could even contribute more than the amount that will earn you the employer match, possibly upward of 10%. That way, you’ll have more money saved up for retirement. You can speak with a tax professional to help you understand the pros and cons of the different types of retirement accounts as well as your account consolidations. That way, you’ll make a well-informed decision concerning your retirement savings.
Plan Your Estate
Estate planning means putting all your affairs in order for your loved ones to take over if you become incapacitated or die. You need to account for all your assets and ensure they transfer to the individuals or entities you want as smoothly as possible. Go through the outside and inside of your home and make a list of all your valuable items. You can include your collectibles, art and antiques, jewelry, and the home itself. Then, add your non-tangible assets to the list, such as brokerage accounts, life insurance policies, bank accounts, 401(k) plans, and IRAs. You can list the location of physical documents in your possession, your account numbers, and the contact information of the firms holding your non-physical possessions.
Having all these items listed out will help put things in perspective when you’re planning your estate. Contrary to what you may think, effective estate planning requires more than just drafting a will. You can consider having a living trust in your estate plan. According to Werner Law Firm, a team of living trust lawyers, ‘’While a will can determine how you wish to have your estate distributed upon your passing, a living trust simplifies this process and can help your family avoid expensive and complex proceedings.’’
Make Adequate Plans for Debt Repayment
Usually, seniors who pay off their mortgages before retirement face less financial insecurity than those who don’t. However, if you are unable to pay off all your debt before retiring, you will not automatically become impoverished when you’re no longer in the active workforce.
Instead of hastily wiping off all your debts at once and ending up with $0 in the bank, try to prioritize your finances as your retirement draws closer. This will help you make the most of the money you currently have. Focus on having a solid plan for conquering your debt in retirement. While setting money aside in your retirement account, try to pay off your highest-cost debts that could derail your golden years.