Most of us spend a majority of our lives working towards retirement. Our whole lives are centered around this idea, but with economy’s instability, poor budgeting, unavoidable challenges, and bad luck, retirement is a stage that many people simply do not get to experience the way they were meant to.
People must begin to realize as early in their careers as possible that retirement is something that you simply must plan for in advance. You may be savvy enough to save for a “future”, but unfortunately saving for retirement is a whole another ball game.
To help you live through a safe and secure retirement, we encourage you to keep some of these ideas, tips, and topics in mind:
Look at what you need based off monthly income, not the whole year. Then plan off that.
Many of us look at our salary based of how much we make annually. It’s easy to say, “I need x amount of money to live properly in a year,” but we all know that life can present unexpected curve balls. Keep in mind that yes, there are retirement sources (i.e. 401(k), IRA, etc.) that will help you stay afloat but the amount you will be receiving will be far less in comparison – it may, in fact, not even be enough for you to sustain for a long period if you are presented with medical needs. Here is a 401(k) calculator for you to figure out if your retirement source will be enough for you to have a successful retirement.
Therefore you must implement proper budgeting where not only do you save for the emergencies and future security, but also separately for all possible situations relating to your retirement. A great strategy is to look at your income monthly versus yearly – but preferably weekly – and begin putting away money towards retirement with every possible paycheck you get. You especially want to start developing standards and plans for how you will deal with your expenses after retirement– learning to budget monthly (preferably weekly) will allow you to practice just that.
Factor in “Life” Risk: Market Crashes, getting fired, inflation, etc.
As we mentioned before, life is no stranger to unexpected dramatic situations. If you are planning to retire someday, you must take into consideration such drastic possibilities – if the idea of separate retirement saving isn’t appealing to you, then we hope we are helping you warm up to the idea. It is important to know that the value of your 401(k) may not be the same after 30 years of working tirelessly so basing your retirement solely on it is advised against heavily.
It is also interesting to know that for you to fully capitulate on your Social Security, you must work till the age of 67. Now, such is not a bad idea (if you can physically perform your duties) considering advancements in medical fields have enabled us to live vivaciously even at an older age – but you have to keep in mind that with the population ever growing and the competition for earning a job consistently increasing, being able to hold on to a job – or get a new one – at an old age is not the most convenient of tasks.
Different Retirement Sources are taxed differently: 401Ks, IRAs, pensions, all have different tax structures—read up!
This is quite a crucial deal to keep in mind. Over the years, you will accumulate a decent portion of your salary through retirement sources but you must be aware that the total you see will have taxes taken out of it; because after tax amount is the actual amount you will be working with and all your post retirement spending plans should be based around this number.
For such reasons, it is suggested you seek benefits of the Roth (after Tax) tax advantage; in this system your contributions are taxed before and therefore no tax will be taken out in a later stage. Doing so can also be favorable because tax code may be different (possible higher tax rate) at the time you are going to retire – this is quite a big perspective to keep in mind when thinking of retirement.
There is a common misconception among people that their Social Security benefits are completely tax-free; this notion couldn’t be further from the truth as up to 85% of your Social Security is taxable.
Bond Investments have Risks! Just because they are bonds doesn’t mean they do not have risks, so make sure to factor that in!
Like any form of investments, investing in bonds can also yield to be an unfruitful endeavor. Your Bond Investment can suffer due to a variety of reasons; inflation + interest rates, the time of maturity + the length of time you end up holding on to it, the call risk (meaning your issuer calls back the bond before it matured), credit risk (meaning the issuer cannot pay), risk of liquidity (in case you are made to trade an unpopular bond; you will get much less back than you gave initially), and of course the state of the market.
For this purpose, it is best to diversify your bond portfolio – and also your stock portfolio if you play the stock game. This allows for a stability and security just in case one of the bond investments flake on your intentions.
Factor in healthcare
While things would be simply out of control with no Medicare facility in place, even with its existence, they can still cause a strain on your savings. Young people should realize that the brittle nature of old age can cause severe medical conditions to arise and Medicare simply does not cover all of it; deductibles, prescription medicine, and various other expenses are expected to be paid out of your own pocket. Therefore the importance of saving towards out of pocket medical coverage during retirement could simply not be stressed enough.
It is understandable that you may feel that you may be at a lose-lose situation when it comes to retirement but now that you know what roadblocks you can face, perhaps proper lifestyle changes could be adopted on your part to cope with them; like having the right amount of children, eating right to maintain healthy longevity, saving money first and spending later, etc. The key to a successful retirement is by starting to plan for it at an early age. How early you may ask? Well, if you are earning money, it’s time you begin planning!