Fear of running out money when you retire is a common concern. Around 65 percent of American households are at risk of being unable to maintain their living standards and start to invest for retirement because they do not have enough money. There are levers that we can push if we don’t want to sacrifice our retirement lifestyle when it’s time to retire. It requires some effort, planning, and flexibility to make it happen.
When to Retire? the Earlier You Prepare, the Better
Being prepared for retirement is one of the best ways to ensure your current lifestyle doesn’t change when retiring. That is accomplished through financial planning for retirement. Many of us do not have a depth of knowledge regarding retirement planning strategies and investments. That’s why it might make the most sense to work with a retirement consultant to discuss your goals and how much money you should have to reach them.
When working on retirement planning strategies, some keys to keep in mind are:
Take advantage of employer-sponsored 401(k) and similar programs; If they have a matching contribution, make sure your contribution is a minimum of that amount
Look at IRA accounts; contribute the maximum about every year
Make sure that your investments are appropriate for when you plan to retire; i.e., You can be riskier with investments the further you are from retiring
Retirement Planning Strategies
At age 65, you are generally able to start receiving Social Security. But there is no mandatory age to start retirement. The retirement lifestyle is one of the factors that will affect when to retire. Knowing your lifestyle is also important to begin financial planning for retirement.
For example, let’s say that you need at least $4500 in monthly retirement income to afford to support the lifestyle you want. Talk to a retirement consultant or figure out how much savings you need to happen with your spouse.
If there is a certain age that you want to retire by, there might be extra work that needs to be done. That could mean paying off debt faster, investing more, or saving more money.
Best Places to Retire
If you don’t want to spend your old days at home, you need to find the best places to retire. When you decide to retire, it affects how much money you can save and the quality of life that you have in retirement. The financial aspects to look at when deciding where to retire include the state’s income tax, death tax rate, and sales tax.
For example, Georgia’s income tax rules exempt Social Security benefits and most types of retirement income to a maximum amount. In comparison, Vermont does not offer any breaks on retirement income and can tax up to 85 percent of Social Security benefits.
Decisions shouldn’t be made solely on taxes, however. The cost of living in a city should also be examined. Housing, groceries, health care, and utilities are costs that are associated with an area’s local economy.
Consider Your Retirement Lifestyle
How do you want to spend your retirement? Your budget for retirement should be based on the lifestyle you plan to have. Here are a few examples:
International Travelers - Taking a trip or more a year to a new destination.
Beach living - Waking up every morning for a walk on the beach then watch the sunset over the water
Golf course - living in a community where you make new friends and get to play golf
Back to school - Taking classes or getting a degree in a subject that always interested you
Staying at home - Take it easy by staying where you are in the home you have lived in for years.
Differences Between Your Current Lifestyle and Retirement
It’s vital to think about how your current lifestyle and the one you want in retirement are different. That plays into how you can financially prepare for retirement. With careful planning that starts as soon as possible, it’s realistic to achieve that lifestyle, especially if you want to keep what you currently have.
Get a Side Job
Having a side job can help reach your lifestyle goals for retirement. That additional money can be used for paying down debt faster or increasing your retirement savings.
It is also helpful to get a side job in retirement. You can work part-time or during certain seasons to continue enjoying your trips or other leisurely hobbies. That money can be used for monthly expenses over dipping into your retirement income.
Be Flexible to Change
Sometimes even after careful planning, we end up not saving enough to afford the lifestyle we want. We must be flexible in adjusting accordingly. Changing could mean getting a part-time job to afford your college classes, taking one less trip each year, downsizing your home, etc. Life is about making compromises, but starting to invest for retirement is a must.
About the Author
Anjana Paul is a banking professional who is passionate about helping others make better choices when it comes to money. In her spare time she is a freelance writer with years of expertise in the financial industry. She primarily writes about topics such as student loans, building credit, budgeting, retirement and other personal finance topics.