Retirement, like rain and tax, is inevitable. It’s imperative, therefore, for you to start to plan and prepare well in advance for the big day. Yes. Retirement is one of the most significant life changes, second only to birth and death.
After settling into a schedule for over four decades, retirement will present you with massive changes. Some of which may be pleasant, like having enough time to follow your passion and not so pleasurable like having to deal with too much idle time and a reduced income.
Whatever the case may be, you have the power to decide what your retirement will look like. Retiring on your own terms doesn’t have to be challenging if you start early enough to plan along with your significant other and with expert help.
Here Are The 12 Retirement Strategies You Should Follow:
Start planning as soon as possible.
I think this should be on top of everyone’s retirement strategies. Starting early to plan for how you’ll live in retirement is paramount. There is so much to organize and put in place, both financially and otherwise, before you retire successfully.
You should start planning towards your retirement once you join the labor force. With life expectancy on the rise, expect to spend a significant chunk of your life – over one third-in retirement. Therefore, you can never start too early to save and plan your assets towards retirement.
Retiring on your terms is a function of how much time and effort you spend in planning for it.
Write down your plans
According to neuroscience, writing down your goals makes you more likely to achieve them. And your objective to retire on your own terms is a goal more critical than any other.
Write down your retirement strategies, plans, and intentions that you have, making sure to include the financial and nonfinancial goals. Define the short and long term strategies for achieving them. Also, specify how you’ll manage your retirement income to retain the lifestyle you want in retirement.
Realize that there is no set age for retirement
Unless you plan to retire at age 65, do not be pressured into accepting it as your retirement age. Most of the population has been programmed to settle for retirement at age 65, simply because it’s about that age they qualify for government retirement and health programs like Medicare and Social Security.
As crucial as these social interventions are, you shouldn’t let them determine when you want to retire. When you start early to plan and put up alternative resources, they don’t have to be the sole determining factor of when you should leave the workforce for good.
You should retire only when you think you are good and ready and, of course, have enough saved up to give you the income you’ll want to live on in retirement. Also, there are valid reasons to put off your retirement that may prove beneficial to you.
Set your retirement savings target and work towards it
How much should you put away for retirement? This will depend on individual situations and objectives. It’s recommended that you strive to replace 70 to 90% of your pre-retirement income. But If you wish to maintain your current lifestyle in retirement, then you can plan to replace 100% of your pre-retirement income.
With that in mind, you can derive the exact amount you’ll need to have in retirement to give you the desired income using the “rule of 20”. This rule argues that you should save $20 for every $1 you expect to spend in retirement. For instance, if you decide you’ll require $60,000 annually in retirement, then you should save up $1,200,00. This ensures you can live off your savings for about 25 years at a 4% withdrawal rate.
Having a savings goal will help you to maximize your employer-sponsored retirement accounts such as a 401(k) or 403(b), which are the primary retirement savings plans for most people. Starting to save for retirement early enough helps you leverage the power of compounding to increase your assets over time. Aim to save 10 to 15% of your paycheck together with an employer match.
You can increase your contribution rate if you happen to fall behind. As of age 50, you qualify for a catch-up contribution up to $6,000 in extra contributions to your employer retirement accounts. You are also allowed to bump up your IRA contributions by an additional $1,000. These are far better options than living on less in retirement or working on for much longer.
Reduce or control your expenses
To reach your retirement saving target, you could either increase your income and save more, or reduce your costs and save more. However, it’s easier to save more by reducing your expenses than it is to earn more since you have more control over your spending habits.
However, controlling expenses has proved difficult for most people. Data for the Federal Reserve shows that the typical American household carries $137,063 in debt. With a whopping $16,883 in credit card debt. Americans, it seems, love their plastic and often use it for most expenses.
Living within your means entails making and tracking a budget. If you know where your money goes, it’s easier to strike out the expenses that aren’t absolutely necessary.
Create a balanced portfolio
Aside from religiously stacking your nest egg, how you invest the funds therein is of critical importance to a successful retirement. Your retirement account should be invested in a diversified mix of stocks and bonds. The bonds will help to stabilize your portfolio against market fluctuations while the stock portion will grow your portfolio and help outpace inflation.
The right mix will depend on your personal preferences, age income, goals, etc. It’s advisable to start off investing aggressively and slow down as you near retirement age or approach your savings goal.
Play the long game. Stick with your preferred mix because markets are volatile in the short term. But they tend to be relatively stable or predictable over a longer period. Investors who stay the course and avoid the temptation to change direction are often on track to reach their goals. They come up with an investment strategy, stick with it, and watch the market sort itself out.
Consolidate your retirement accounts
If you’ve moved around a few times in your career, you’ll probably have several retirement accounts with different employers. Consolidate them all into a single account – preferably an IRA, to make it easier for you to manage.
An IRA also has the advantage of offering a more extensive range of investments to select from than employer-sponsored retirement accounts. This means you can get lower-cost investments to reduce your investment expenses.
But where you have an excellent employer-sponsored retirement plan with low fees and the right mix of investment choices, it won’t make sense to move your money away. Also, consider that there are transaction fees and taxes to be charged. If you retire from your company just when you turn 55 years or older, you can have unfettered access to your 401(k) free of early withdrawal penal charges. But if you consolidate the funds into an IRA, then early withdrawal penal fees will be applied to the transaction.
Social Security remains a primary source of income for most retirees and that’s the main reason why it should be part of your retirement strategies. You should plan to take full advantage of it. You qualify to get your full entitlements once you reach Full Retirement Age or FRA – which is a factor of your birth year. For most people today, FRA is typically at age 66 or 67.
You can apply for your benefits as early as age 62. But this will reduce your benefits by every month taken before your FRA.
Waiting to claim your social security benefits after your FRA up to age 70 gives you delayed retirement credits that can raise your benefits by as much as 32 %.
But delaying Social Security might not be in your best interest. There are a lot of factors to consider which affect your benefit and how you get them. Delaying social security will be advantageous because of the more substantial gains if you want to continue working well into your 70’s or have enough saved up to live off of. Otherwise, you are better off taking it right away, especially if you retire early.
Track your plan
Your plan is subject to change, given the long term nature of retirement planning. Periodically review your actual position against your targets – financial and otherwise.
Make changes to your plans as needed to reflect new opportunities and transitions in your situation, economy, and government regulations.
Hire a professional
Retirement planning is a complicated affair, and you may need expert help if you are to succeed in your quest to retire on your own terms.
Planning for your income in retirement isn’t just about building your assets. You’ll have to contend with things like retirement plan distribution strategies, income conversion, long-term care, Social Security, and Medicare planning, all of which require specialized knowledge, expertise, and experience.
These moving parts need to be analyzed and managed continually to prevent potentially costly mistakes that may derail your well laid out plans.
You should, therefore, hire a team of professionals to plan and manage your retirement income to achieve your objective of retiring well and on your own terms. Your ideal team should consist of a CPA, insurance agent, investment adviser, estate attorney, and a retirement income planner.
Retirement planning continues even after retirement.
When you finally retire, it’s not time to drop your guard and ditch all your pre-retirement plans. Continue to implement your retirement strategies even as you reap the benefits of your previous long term efforts. Retirement living is a lifelong project that will require you to make plans to adjust to the constant changes around you.
The Importance of Having Retirement Strategies That Suits Your Lifestyle
Having enough money isn’t the only consideration for living well in retirement. Your happiness and relationships also play a massive role in your level of satisfaction. It’s not just about retiring but living your dream life in retirement, retiring the way you want to – retiring on your own terms.
The best retirement strategies are the ones tailored for your particular situation and desires. Working with your advisers, do a comprehensive evaluation of your finances and lifestyle to create a workable plan to help you ease into retirement on your terms and live out your golden age just the way you want it.