Retirement represents a major life transition. Financial anxiety, lack of routine, and health concerns – it is completely normal to feel stressed and overwhelmed. This is why creating a robust retirement plan is important.
Not sure where to begin? We’ve got you covered. Here’s a complete retirement guide you can follow for a financially secure future:
Determine Your Ideal Retirement Lifestyle
The first step in a retirement planning guide is goal setting. Start by envisioning your ideal retirement life. Ask the following questions:
- When do you want to retire? Your target age affects how long you have to save.
- What activities do you wish to pursue? Some people want to run a small business, others want to travel, and some want to take up official grandparent duties.
- Where do you want to live? This will help determine housing costs like rent, mortgage, and maintenance.
Estimate Your Expenses and Income Needs
The next step is figuring out how much money you need to live a comfortable retirement life. Experts suggest that you’ll need 70% to 90% of your pre-retirement income to maintain the current living standard. That said, you might need more or less depending on your lifestyle.
Don’t forget to factor in future changes. For instance, the cost of commuting might decrease, but medical expenses may increase significantly. You should also consider inflation, which could reduce the purchasing power of your savings.
Take SoFi’s retirement quiz to determine how prepared you are.
Choose the Right Retirement Accounts
Retirement accounts ensure a steady income after you stop earning. They are also necessary for growing your savings over time through compound interest. The main types of retirement accounts are:
Employer-Sponsored Plans
These accounts are offered by your workplace. For instance, you can contribute to a 401(k) plan (if you work at a for-profit company) or a 403(b) plan (if you work at a nonprofit).
Moreover, employer-sponsored retirement accounts are tax-deferred. In simple terms, you don’t pay taxes on the money you’re contributing to the retirement account. But you will owe them when you make withdrawals in retirement.
Individual Retirement Accounts (IRA)
You can open an individual retirement account (IRA) by yourself. In a Traditional IRA, your money grows tax-deferred until retirement. Withdrawals are taxed.
In comparison, in a Roth IRA, contributions are made with after-tax dollars. Qualified withdrawals in retirement are tax-free.
Consider your employer’s policies and personal financial goals to choose the right plan. And of course, you can open both a 401(k) and an IRA.
Diversify Your Portfolio
Diversifying your investment portfolio can also help you achieve financial freedom in retirement. Spread your money across a range of assets, including bonds, stocks, ETFs, or even real estate funds.
The aim is to build a financial safety net against inflation and decreasing purchasing power.
Insider Information: Common Mistakes to Avoid
Here are three common mistakes you need to avoid during retirement planning:
- Starting too late. Many people procrastinate and let the years slip by. The earlier you start, the more financially secure you’ll be.
- Not taking advantage of your employer-sponsored retirement account.
- Not maximizing your social security benefits. Delay them past the earliest withdrawal age to have a little extra for your golden years.
