When it comes to retirement planning, Americans are often way behind. In fact, in 2019, almost half of households headed by someone 55 or older had no retirement savings at all, according to the U.S. Government Accountability Office. The traditional retirement age is 65 in the United States and most other developed countries while 60 in Nigeria.
Retirement is a major life milestone, and it comes with many changes. Talking about “Retirement” can be alarming, the general transition can be mentally and emotionally taxing, and planning it could be overwhelming.
What does retirement planning even mean? Retirement planning is one of the primary financial goals of our lifetimes. To help prepare for this important goal, you must save and invest your money in a retirement plan. Retirement planning refers to choosing financial strategies that will enable you to be comfortable and secure in your retirement years. A good retirement plan, executed smartly, can provide you with enough money to cover all expenses during your retirement years.
According to the Center for Retirement Research at Boston College and the Consumer Financial Protection Bureau, approximately 50% of today’s retirees have cut back on their spending or will be forced to do so, due to dwindling resources. Far too many retirees will end up relying on Social Security to cover most of their living expenses only to find out the hard way that it isn’t nearly enough.
Steps to Retirement Planning
“Retirement planning is a journey, not a destination”. Retirement planning starts long before you retire. These are strategies that need to be implemented to ensure you have a financially secure retirement.
- Come up with a plan: This includes deciding when you want to start saving when you want to retire, and how much you’d like to save for your goal
- Set Automatic Transfers: Decide how much you’ll set aside each month. Using automatic deductions keeps you on track and takes away the temptation to stop or forget depositing money on your own.
- Create an Emergency Account: Having a separate emergency account usually with about three to six months of salary saved up will allow you to cover any unexpected costs, if you need cash in a pinch without throwing your retirement plans out of whack.
- Choose the right accounts for you: Take the chance to invest in a defined contribution plan or IRA plan if your employer offers that option.
- Check on your investments from time to time and make periodic adjustments: It’s always a good idea to make any changes whenever there’s a change in your lifestyle and when you enter a different stage in your life.
- Pay Down Debt: One goal for everyone should be to reach 65 debt-free. That includes credit card debt and especially the high-interest reward card kind, car and mortgage loans, any student, and other big loans. The reason is simple: you don’t want to be going into your non-earning years owing money.
To help ensure you have a financially secure retirement, it’s wise to create a plan early in life or right now if you haven’t already done so. By diverting a portion of your income into a tax-advantaged retirement savings plan. Listed below are retirement plan options you can consider which do not include relying on your children for financial support when you retire, you can read more about them here-Best Retirement Plans & Retirement Planning: How to Map Out Your Financial Success.
- Defined contribution plans
- IRA plans
- Solo 401(k) plan
- Traditional pensions
- Guaranteed income annuities (GIAs)
- The Federal Thrift Savings Plan
- Cash-balance plans
- Cash-value life insurance plan
- Nonqualified deferred compensation plans (NQDC)
- Self-employed retirement plan
- Employer-sponsored retirement plan.
There is a misconception that retirement planning will go more smoothly for high-income earners. However, just because you bring in a substantial income does not guarantee smart money management. Even those that are well-educated and accomplished are not immune to making financial missteps. There are several common retirement planning mistakes we make as individuals, and this can interfere with a timely and prosperous retirement, they include:
- Waiting to Start Planning: Pushing off saving for retirement is the biggest threat to maintaining your existing standard of living in the future. Check out Benefit for Retirement Planning for more details.
- Not Saving Enough: We all generally enjoy a higher standard of living because we are high-income earners. To maintain a similar lifestyle in an extended retirement, you need to find ways to increase your savings.
- Unexpected job loss: Stable income is essential for retirement savings, but unexpected job loss can happen to anyone or replenish an existing one.
- Supporting kids through post-graduate studies: As you approach your 60s, you may feel close to retirement, but that does not mean your kids are. Unfortunately, many parents spend upward of $5,000 annually on a post-graduate child. You want to help your kids, but you need to keep your retirement needs at the forefront when deciding how long to support them. To determine how long your retirement can last and identify how long you will support your children. It is important to agree on boundaries, not only to help them grow up but also to prepare them for their retirement.
- Not Having a Financial Plan: Just because you have a retirement account through your workplace doesn’t mean you have a retirement strategy. It is critical to have a thorough plan that considers multiple factors. These factors include your financial goals post-retirement, your earning potential, how long your want to work, how you think your will spend your time in retirement, family dynamics, higher education savings, and healthcare cost in retirement. To have a well-structured financial plan for retirement, you need to avoid frivolous expenses that might affect your savings.
We hope that we have been able to provide some clarity on planning out your retirement years and ensuring you are financially fit for it. In order to know which retirement plan option best fit watch out for part 2. Do have a great week ahead.
Share with friends and families, drop your comments in the comment box, and engage with us via our social media platforms @broadstreetfinancialreview on Facebook, Instagram, and LinkedIn; @broadstreet_fin on Twitter.
Stay with us as we walk you through the journey to financial freedom.
Thank you for reading and look out for our next article!
James Royal (2022, August 1). 9 best retirement plans in August 2022 from https://www.bankrate.com/retirement/best-retirement-plans/.
Bryan Borzykowski (2022, January 18). The ultimate retirement planning guide for 2022 from https://www.cnbc.com/guide/retirement-planning/#what-investments-accounts-should-you-use.
Kat Tretina (2022, July 8). Best Retirement Plans of 2022 from https://www.cnbc.com/guide/retirement-planning/#what-investments-accounts-should-you-use.
Matthew Frankel, CFP (2022, June 8). Retirement Planning: How to Map Out Your Financial Success from https://www.fool.com/retirement/.
Julia Kagan (2021, November 20). Retirement Planning from https://www.investopedia.com/terms/r/retirement-planning.asp#:~:text=Retirement%20planning%20refers%20to%20financial,money%20with%20certain%20tax%20advantages.
Justin Pritchard (2022, May 25). How to Retire in 2022 from https://www.thebalance.com/how-to-retire-5087135.
Bill Harris (2016, May 27). 7 Factors That May Negatively Affect Your Retirement Plan from https://www.personalcapital.com/blog/retirement-planning/7-factors-that-may-negatively-affect-your-retirement-plan/?__cf_chl_tk=SdXWvzY9o8DQ_TCNOX.0l6hxL6IV59daDdA2PyXqd.4-1661423405-0-gaNycGzNCL0.