It’s never too early to start investing in your retirement. You want a relaxing, enjoyable retirement, after all, so it’s well worth planning ahead and thinking about the steps you need to take.
For many of us, though, planning for retirement is, well… confusing. There are many ways to start saving for retirement, which can make all the options overwhelming – especially when you just want to know the best route for you, personally.
So, to get you moving in the right direction, here’s your ultimate guide to creating a retirement plan.
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What Is Retirement Planning?
Retirement planning is simply preparing yourself financially for retirement, so that you can enjoy a steady, liveable income during your later years. It also involves taking healthcare and tax expenses into account, which will need to be covered during retirement.
Creating a retirement plan can include making a personal retirement savings target, sizing up your monthly retirement income goals, managing assets, and investing a set amount into your retirement, through one or more programs, each year.
And here’s the thing: the earlier you start planning and investing into your retirement, the better. It’s the best way to guarantee retirement security, and therefore a carefree and enjoyable retirement, so it’s important to know the steps to get there!
What Is A Good Monthly Retirement Income?
The first thing to think about is how much monthly income you’ll need to live when you retire. There is no one-size-fits-all magic number, unfortunately, as how much you’ll need will be entirely personal.
So consider your current expenses—including bills, food costs, vehicle/transport costs, health insurance, personal expenses, and so on—and weigh up whether this will increase or decrease when you retire.
Another thing to think about is how you plan to spend your retirement. Some people simply plan to relax, after all, while others plan to do more: travel, shop, renovate, and increase their entertainment and hobbies, for example.
Types Of Retirement Plans
Alongside Social Security retirement benefits, there are various types of retirement plans and retirement accounts that are worth weighing up. These include employer-sponsored plans, IRA accounts, guaranteed income annuities, and even personal savings accounts.
For more information on these, you’ll find a quick overview of each retirement plan below and what it offers.
Compared to government-sponsored plans, employer-sponsored retirement plans are offered by employers.
Popular options include the 401(k), 403(b), and 457(b) plans, which involve automatic contributions from your work income that are made after tax. You won’t have to pay tax on gains either as long as you don’t withdraw the funds before you retire.
Some employers will even offer to match your contributions, helping you to save more of your pre-taxed income.
IRA (individual retirement accounts) plans, including the traditional IRA and Roth IRA, are another great way to set aside money for your retirement.
The traditional IRA allows you to put money away before you are taxed. The Roth IRA, on the other hand, lets you put money into your account after you are taxed.
Both offer their own benefits, but the main disadvantages of each is that a traditional IRA will lower your taxable income while a Roth IRA involves non-tax-deductible contributions.
Guaranteed Income Annuities
Guaranteed income retirement annuities can be bought with a single payment or across multiple payments. Either way, the annuity will provide you with a guaranteed retirement income once you retire.
The benefit of retirement annuities is that funds will grow without having to pay tax. Fixed guaranteed income annuities are also another way to protect yourself from market volatility.
Guaranteed income annuities provide exactly what they offer: guaranteed income during retirement, which you’ll receive on top of your other retirement funds.
Personal Savings Accounts
Having a personal savings account is always a good idea for emergencies. But it’s also another easy way to save money for your retirement. The best thing here is that it’s entirely self-managed, so it’s up to you to decide how much you put in on a month-to-month basis.
So, above all, this method is the most flexible. There is little risk involved too in terms of market volatility, and your funds are also always accessible in the event of emergencies and unexpected expenses.
Do I Need A Retirement Plan?
Having a retirement plan is important for guaranteeing you have enough money to live on during your retirement years. This includes covering all your usual expenses, as well as anything you plan to do, or spend on, during retirement.
As a result, investing into retirement programs can be even more important if you plan on traveling, investing into your hobby, or enjoying more entertainment. The same applies if you work part-time, making investment plans important for supplementing your government-sponsored and employer-sponsored retirement funds.
All in all, thinking about your life after work is important – even if you’re not sure how you want to spend your retirement just yet. The best thing to do is to just start saving as early as possible, while considering the various retirement plans available to you!
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