As you begin your professional life, retirement may be the least of your worries. However, retirement planning is one of the most important long-term priorities to keep in consideration, alongside job stability. There are 47.8 million U.S. citizens aged 65 and older, representing 14.9 percent of the total population.
Retirement planning refers to the preplanning and execution involved in setting yourself up financially for when your working tenure ends. It involves depositing money into a retirement account that is kept for future use. Preparing your finances is a wise decision as it not only helps keep you comfortable financially but also at peace psychologically.
Retirement planning is advantageous for those who have been working from a young age. However, employees of all ages should begin setting financial goals beyond their current work phase to avoid depending solely on the next generation for their future living expenses.
A particular age may determine retirement, but you are never too young to have a retirement plan. Refer to the retirement plans according to your age group’s classifications to find the one most suitable for you to follow:
1. Young Adulthood (Ages 21-35)
Retirement planning varies among age groups. However, young adults today face a different set of challenges as compared to the previous generations when planning for their retirement due to ever-increasing inflation rates and fluctuations in economic conditions.
At a young age, you can start by saving a significant amount, for example, investing $50 a month on a compounded rate scheme allows you to monetarily benefit from the time-value of money based on interest rate factors within a few years. Employees can generally join a 401(k) plan by the age of 21. That way, an employee wouldn’t have to make up for the years they spent paying off their student loans.
2. Middle Age (36-50)
When you reach your late 30s, you have two options: Either to increase the saving-to-consumption ratio or to contribute more to your 401(k) fund. In the latter case, you can add 1% to your 401(k) to increase your income percentage.
Monitor your progress. Pay attention to the stocks you have invested in and the assets you own. It will help you track the changes with your initial investment and let you balance your estimated expenses in case you encounter a huge medical or other financial expense. The ROI (Return on Investment) you get from your stocks and assets will act as a general reserve for your future expenditures.
3. Nearing retirement (50-65)
When you are close to retiring, you try to juggle as many responsibilities as you can. This is the time frame when savings begin to play a vital role in your retirement planning. If you have amassed an ample amount of saving, you are likely to be at ease in the long-term with proper wealth management.
However, if you haven’t considered saving for the future then check your investment portfolio to ensure that you have enough to at least pay off your debts.
Start by calculating the annual average amount you spend on household expenses (food, clothing, utilities, leisure, etc.). This will also help you identify the costs no longer associated with your day-to-day living.
Tally your expenses with your post-retirement goals. Is the amount sufficient to fulfill your retirement plans and help you maintain your standard of living? Employees can benefit from depositing more tax-advantaged money in their retirement accounts. Tax-advantaged money allows you to invest in bonds and annuities that exempt you from paying deferred taxes.
According to CNBC, the 2016 median retirement account balance results amounted to $66,643; the dire state of the population and their financial future shows that half live below that while the other half meets or crosses this amount in the 55 to 64 age group. The mean saving for that age group comes up to $178,963.
Risk aversion is the most crucial component in your 50s. You must seek minimum risk by putting your money into safer investments for better returns. The best way to be risk-free is to pay off your credit card debts as the interest factor restricts you from availing tax benefits in the long term.