5 Tips for Planning Your RetirementSubmitted by JMB Financial Managers on February 19th, 2020
A Few Simple Steps to Help You Get Started
For many, preparing for retirement can feel overwhelming, and can even become a barrier that keeps people from focusing on and implementing a retirement plan. If you haven’t started planning for your retirement, don’t wait, make today the day you begin planning for your future.
1. The earlier you begin, the better off you will be.
When it comes to saving for retirement, time is one of your greatest allies. A person who begins contributing a modest amount to a retirement plan in their early twenties could end up on par with someone who contributes much more aggressively but doesn’t start until their mid-forties. Even if you start small, start now. Whatever amount you can afford to set aside for later, do it – and let it grow! If you didn’t have the luxury of starting young, don’t waste time worrying about it. Start now, as you will never again be younger than you are today.
2. Be mindful of what you will need and how long you’ll need it.
While it is true that the senior discount is alive and well, and the general cost of living may be less for those who have retired, but don’t forget that there are other costs to consider. Your healthcare costs, for example, may be greater in retirement simply because you’re not as young as you once were. Additionally, you’ll want to take inflation into account. If you plan your retirement based on the cost of living and income of your 30’s, by the time you hit retirement age, you may find that you greatly underestimated your needs. If you’re now married, there are 3 topics to discuss if you are going o retire as a couple.
Once you’ve prepared for how much you will need, determine how long you’ll need it. When Social Security was first being developed, the average lifespan was much shorter. As the average life expectancy of U.S. citizens has continued to rise, depending on when you plan to retire, you may need to plan for 20+ years of income during your retirement years.
3. Take advantage of tax-deferred contributions.
People frequently determine how much they can afford to contribute to a retirement account based on their net income, rather than their gross income. You may decide you can only afford $50 less per paycheck, net. But remember, that some contributions, like those to your 401(k) for example, may be made with pre-tax dollars, meaning you can afford to contribute a bit more from your gross income and still only “miss” $50 from your net income. This is important to consider when setting your contribution amount. For more information check out our blog post 3 Simple Steps to Help You Care for Your Retirement Plan.
4. Take advantage of free money AKA matching contributions.
If your employer offers a 401(k) match, consider scrimping here and there in order to take maximum advantage of it. It’s a very positive domino effect. The more you contribute, the more you earn in matching contributions (up to the maximum allowable amount). Think of it this way – if your employer offers a 50% match, for every $100 you don’t contribute, you’re missing out on $50 in “free money”. You’re also missing out on the growth potential of that money, remember time is your ally. For more information check out our blog post 8 Tips to Help You Make the Most of Your 401(k).
5. Do the math and trim the fat.
This might be the most important retirement tip of all. Block off some time to sit down and do some calculations. Consider the different levels of contributions you could make and calculate how far those could take you by the time you reach retirement. Once you see what you could achieve, you may be more motivated to increase your contributions.
Keep careful track of your spending for one month. If you bank online, check out the tools they offer that may help you do this. After one full month, sit down and take a careful look at what you spent money on. Did it all make sense? Was some of it frivolous? Any regrets? Taking a close look at exactly where your money is going is often the best way to discover areas that need improvement, and ways you could adjust your spending habits. Add up all the money you feel you spent unnecessarily, then add that amount to the contribution math you did previously – how much further might that extra monthly contribution have taken you?
Start Your Retirement Planning Today
These retirement tips are intended to help you get started down a path toward a more successful retirement. But they’re just that, a starting point. While it’s important to educate yourself and understand your finances, seeking the assistance of a financial professional may be one of the best moves you make. Schedule a free consultation with JMB Financial Managers today to get started.
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