Are You Considering Retirement in the New Year?
Retirement can be a scary thought for many of us, as it can mean entering the realm of the unknown. Perhaps the biggest and most practical retirement concerns surround knowing whether your retirement savings really stack up.
Will your retirement savings be sufficient enough to provide a comfortable lifestyle for the duration of your retirement? Or, will your funds and savings get depleted relatively quickly and cause an unwanted lifestyle change rather than offering opportunities to enjoy retirement?
There are various ways to determine how well your retirement savings stack up against your upcoming retirement lifestyle. One easy way to go about this is to use an online calculator to estimate your retirement income based on assumptions such as taxes, inflation, and your expected annual expenditure after retirement. However, do you want to depend on assumptions when calculating your retirement lifestyle?
A finer way to go about this is by hiring an experienced financial professional who will calculate post-retirement lifestyle costs, based not on assumptions but on educated, reasonable projections on variables such as taxes and interest rates. With proper planning and a proactive approach to financial management, you can avoid some of the common financial pitfalls faced by retirees and live a relatively predictable retirement lifestyle without stressful surprises.
A lot of these risks can be mitigated by proper financial planning prior to retirement. Financial planners use a host of tools to track your retirement readiness and determine whether you will be on track to hitting those goals.
Here are some tips that you can undertake to enhance your retirement readiness:
Prioritize Retirement Planning
It is generally advised that you begin planning for retirement as early as possible. Don’t procrastinate when it comes to your retirement planning. Start setting aside some contributions into your 401(k) and individual retirement accounts (IRAs) early on in your career. That way, you will be better prepared to meet your retirement goals.
Programs like a 401(k) can be an effective way of accelerating your retirement savings since many have an employer matching feature. In this case, your employer will make a contribution to your retirement account based on the amount that you are contributing. The amount matched depends on the terms and conditions of the specific employer. It could be the fastest way to ramp up your savings and if you start it early enough, can be an ideal vehicle for building a retirement nest egg.
The 80% Rule in Calculating Your Retirement Readiness
If you are still working towards meeting your retirement savings target, you might consider increase savings by making some lifestyle changes, and/or prudent investments.
According to the 80% rule, a retiree will need 80% of the income they earned annually to maintain their lifestyle during retirement. As a result, someone who earned an income of $100,000 annually will need $80,000 annually during their retirement years. You are also likely to receive Social Security benefits and pension benefits during your retirement years.
What is the Safe Savings Rate to Retire Comfortably?
The actual savings rate is calculated using specialized software based on your current financial profile and the number of years left working prior to retirement. To track your retirement readiness, it is advisable to talk to an experienced financial professional who will seek tools to determine the amount you need to save to reach your goals. Work now to ensure the lifestyle you envision for tomorrow.
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