Retirement can be a tricky bit of water to navigate. We all know it’s coming, but we don’t know how to prepare for it. Below, we will look at how you can prepare for retirement.
Planning Your Retirement
Planning for retirement means planning your finances to have enough to live comfortably after retirement. While other factors tie into your retirement, financial planning is the most important and should be treated that way.
There are some key factors to remember when planning your retirement.
- You can only start collecting social security benefits after you turn 62, but your benefits will increase the further you delay retirement.
- Retiring slowly and easing into it is much easier than stopping work abruptly, meaning your planning will make your transition smoother.
- You want to avoid taking any debts into your retirement.
- You want to focus on making maximum contributions to any retirement funds you’re a part of to reap the most benefits after your retirement.
- Planning for your retirement should be done as early as possible.
When you’re in your 20s, the last thing you’re thinking about is your retirement.
You want to explore the world, have fun, try new things, and grab your life by the horns. While this approach is understandable, the lack of planning can leave many people worried about what will happen to them in the second half of their life as they age.
When it comes to securing your financial future, planning ahead is critical.
When Should I Start Planning?
As early as possible.
While you’re not ruining your chances of a peaceful retirement if you start a little later in life, planning for your retirement as early as possible is your best bet for a peaceful, prosperous retirement.
Below are 3 of the most common methods people choose when saving and planning for retirement.
- Employer-sponsored retirement plans, such as a 401k
- Retirement savings, such as investments
- Social Security retirement benefits
Each option has its own pros and cons. Let’s go through each to see which is best for you.
Employer 401(k)
401(k)’s offer employees/savers tax benefits while providing returns on their investments.
After joining a 401(k), you’ll be required to contribute a percent of your income to the investment account. Your employer may match some or all of your monthly 401(k) contributions, and you’re usually offered a wide range of investment options in mutual funds.
There are typically two different types of 401(k) accounts: Traditional and Roth.
These 401(k)funds mainly differ in how they’re taxed. With traditional funds, your contributions are made pre-tax, meaning that you’ll be able to reduce your taxable income since a part of your income is being put into the fund monthly. Withdrawals from a traditional 401k are taxed. And no taxes are due on both money contributed and investment earnings until you withdraw your money—this usually happens in your retirement.
Roth 401(k) allows you to make contributions with your after-tax income. You won’t be subject to a tax deduction in your contribution year, but your withdrawals are tax-free, so you won’t pay taxes on your withdrawals while you’re in retirement.
Your employer can contribute to traditional and Roth 401(k)’s. But some employers don’t offer the option of a Roth 401(k).
When an employer offers traditional and Roth 401(k) funds, you can contribute to both funds up to the annual allowed limit.
For workers under 50, the fund contribution limits are set at $20,500 per year, with total employee-employer contributions maxing out at $66,000 in 2023.
Both 401(k) options are great ways to start planning for your retirement and increasing the savings you’ll be able to access.
Retirement Savings Through Investments
When it comes to taking your savings into your own hands for retirement, there are plenty of different options you can choose from to suit your goals and current needs.
Some of these options include:
- IRA plans
- Traditional Pensions
- Guaranteed Income Annuities
- Life Insurance plans
- Mutual funds
- Index Funds
- And more
While we’re not going to go too deep into the details of each option, they are available and will offer something a little different. This wide range of services and options means you can pick the exact plan for your needs and your current financial situation.
Once again, the key with most of these options is to pick one early and stick with it for as long as possible. Because many of these options give you the benefit of compound interest, the sooner you sign up for one of these options, and the longer you stay with it, the more you’ll be able to save over the long run.
Social Security Retirement Benefits
Social Security Retirement Benefits are one of the more common ways that many people choose to plan for retirement.
Social Security Retirement benefits give members a monthly check that replaces some of their income during their final stages of work and into their retirement.
While it is a convenient way to make up for some of your lost income, it doesn’t replace your entire income, so it’s best to plan and identify other ways you can pay for your monthly expenses as you grow older.
How Do I Know What’s Best?
Sometimes the sheer amount of options and information can make choosing a retirement plan a little cumbersome and frustrating. Most people also don’t have the time to read through all that information and understand the different investment and saving options available.
This is where speaking to an expert makes a difference in how well you can plan for retirement.
By speaking to someone who’s spent years learning and working in the financial industry, you’ll be better prepared and equipped to make an educated decision for your retirement.
When choosing the best path for your retirement, Hometown Financial Group offers a plethora of services and information to help guide you through the process and set you up with the best options for your retirement.
Speak to one of our experts today, and we’ll help set you up for a long, enjoyable retirement.