What are your goals for retirement? Do you dream of travel or want to have the financial security to live the type of life you’ve dreamt of? Planning early and with the help of a retirement planner can help you achieve your goals.
Determine your retirement needs
Based on your wishes and how much money you plan to spend in retirement, you will need to make plans for your money. Inflation means that your money will need to grow over time so that you can meet your goals. Keeping up with inflation should be your bet as you prep for retirement, at a rate of at least 2 percent year over year.
Financial advisors suggest that you plan to spend as much money as you did pre-retirement so you know your money will allow you to keep up your standard of living. Try for spending at least 80% of your pre-retirement lifestyle.
Save 15% of your income
One good way to plan for your money to grow is to save at least 10 to 15 percent of your income. The longer you can do this, the greater the opportunity you will have for your money to grow. Put this money in a high-yield savings account or the proper investments based on your time horizon to retirement.
Know your time horizon
Understanding how far away you are from retirement should help you know what to do with your money at any given time in order to get the most possible growth. Earlier on in your earning years is the best time to start setting money aside. Think of it as paying yourself. The more time you have left until retirement, the more volatility your portfolio can withstand, and the longer your money is in a high-growth account, the more you stand to gain.
The closer you get to retirement, you need to think about having accounts that focus on income and dividends or stability, such as bonds rather than stocks. When you are close to retirement, you can stand to have a lower expected return in exchange for a reliable influx of money later on. This transition usually happens in your forties and fifties.
Assess risk tolerance
An important component of choosing how to distribute your funds is your tolerance of risk. If you are more conservative, you can focus on holdings with slightly lower returns but reduced volatility. If you are prepared for the volatility and ready to watch your stocks perform, you can invest in more stocks and adjust as needed. A financial advisor can help you plan for these situations and place your money where it will grow for you comfortably.
Investing your money is crucial in the race to beat inflation and watch your money grow. A professional can help you choose stocks, bonds, and mutual funds to invest in based on your tolerance for risk and your time horizon to retirement.
Count on after-tax returns
It’s important to note that certain accounts are tax-deferred versus tax-advantaged. Roth IRAs, for example, use money that has already been taxed. In retirement, you can withdraw from your account tax-free. Traditional IRAs and 401Ks operate differently and will count toward your taxes in retirement. Consider the tax implications of your investment decisions when you plan for your retirement.
To learn more about retirement income planning, reach out to FESA today.