Retiring is an exciting time in our lives. We have the freedom to spend our retirement activity time however we want – whether playing with the grandkids every day or road tripping in an RV. We should take some actions to ensure we have the retirement funds necessary to retire with financial security.
Start Your Retirement Planning
Saving for retirement should start as soon as possible, even if you can’t max out your contributions. If you have an employer who offers a 401k investment, be sure to take advantage of it. Try to contribute 8 to 12 percent of your salary to start your retirement planning. Otherwise, at least match the 401k investment contribution that your employer provides.
Saving for Retirement
Checking in on where you are at in your retirement planning becomes more important the older you get. Review your retirement savings once a year to decide if your asset allocation makes sense for the age that you’re at.
Once you reach 50 or older, you can take advantage of catch-up contributions. These are higher annual contribution limits set by the IRS for 401ks and individual retirement accounts (IRAs). If you can afford to invest in these catch-up contributions, it is good to do so.
Deciding Your Retirement Lifestyle
A big determinant of how much money you’ll need to retire is what lifestyle you intend to have. Living in a luxury golf community versus staying in the home that you’ve paid off have sizable differences in cost. Your retirement lifestyle goals may change over time too. As you check your retirement funds annually, it’s a good idea to put some thought towards if you still have the same goals or if they’ve shifted.
Determining When to Retire
The typical retirement age is considered 65 in part because of the rules around Social Security benefits. We all know that we can’t rely on Social Security alone as an income source in retirement. Here are some key milestones to consider to help decide when to retire:
- Age 55 – If you leave your job or retire, you can withdraw from retirement savings plan without penalty
- Age 59 ½ – Depending on the plan, you can withdraw from qualified plans/IRAs without penalties
- Age 62 – Can begin collecting Social Security
- Age 65 – Medicare coverage can begin
- Age 66-67 – Depending on when you were born, you have reached Social Security full retirement age
- Age 70 – This is the latest age you can start receiving Social Security benefits
- Age 72 – Must take required minimum distributions (RMDs) from retirement plans
Before you get to enjoy your daily retirement activity of not going into the office, you have some prep work. Here is a checklist of retirement preparation activities to complete to ensure a successful retirement:
- Reinforce your emergency fund savings account – The unexpected will undoubtedly happen, so have an extra financial cushion.
- Create a retirement budget – Analyze your retirement expenses and come up with an accurate estimate of your spending and monthly income. One of the biggest retirement mistakes that people make is underestimating their expenses.
- Research your health care options – Medical expenses are expensive, so make you include these costs in your budget. Look at what your health insurance options are and decide which ones to elect.
- Make an income timeline and run scenarios using an online calculator – Make sure you know all the sources of your retirement income and how they stack up against your expected expenses. It will help manage your cashflow. Use a retirement calculator to see how long your money will last with different decisions like retirement age and rate of return.
Do you think you might be coming up short on retirement money? Here are some retirement tips that could help:
- Get healthy – Health care costs are expensive. Focusing on your physical health now can provide preventative care to reduce the doctor visits and medications that you’ll have to deal with later.
- Hire an investment expert – An investment professional is an expert in their trade, just like a doctor is in medicine. They are a great resource for advice and can you run the numbers.
- Work for a few more years – Delaying retirement will give you a few more years to boost your retirement funds significantly.
- Eliminate your debt – If a good portion of your retirement money is allocated towards debt, get them paid off before retiring. These retirement tips will free up your fixed income, not to mention save you money on interest expenses.