If you want to have a comfortable and secure financial life during your retirement, then you need to think about investing.
The first step to successful investing is to have a retirement plan. While it is complex to create this kind of plan, it assures you peace of mind in your golden years. Read on to learn more about retirement planning and investing.
The Importance of Retirement Planning
Retirement planning is the process of setting retirement income goals and taking the necessary steps to achieve them. You must take your retirement planning seriously if you want to achieve a decent living after your working life. Below are some reasons retirement planning is essential:
You Won’t Work Forever
While some may wish to work till the day they drop, the fact is you can’t perform your tasks optimally for your entire life. You’ll slow down as you age and have a hard time performing some tasks.
Hence, it’s crucial to plan and save for your retirement. The money might come in handy in case you retire earlier than expected.
As you age, you become more prone to health complications. Medical expenses can strain your finances post-retirement. With a proper retirement plan, you’ll never have to worry about not having enough income during lengthy or multiple hospitalizations.
Depending on Social Security is Risky
Retirement makes you eligible for benefit checks from Social Security and medical coverage through Medicare. However, these benefits may not be enough to accord you the comfortable retirement you desire.
With proper planning, you’ll have retirement funds to supplement what you get from Social Security. The funds also serve as a safety net in case you don’t get Social Security and Medicare.
Retirement Investing Mistakes to Avoid
As you begin investing for retirement, you may encounter some mistakes and commit various errors. While these are all part of the learning process, there are some mistakes you can’t afford to make:
Failure to Plan
Without a proper plan, achieving a financially secure retirement will be virtually impossible. Create a well thought out plan and stick to it. Try to answer the following questions as you develop your plan.
- How much can you save each year?
- Are you capitalizing on every saving opportunity?
- Where are you investing your assets, so they can appreciate?
- What’s the best way to manage your investments?
Consider working with a professional financial planner if you’re having a hard time creating a proper plan.
Not Saving Enough
Financial experts recommend saving 10% to 15% of your annual income for retirement. These savings include any company match you receive from a workplace plan, such as a 401(k).
If your savings rate is below the recommended target levels, consider increasing your savings rate by small increments like 1% every year. You can use a retirement calculator to find out how much you’ll have saved by a certain age.
Poor Tax Planning
If you think your tax bracket will be higher in your retirement compared to your working years, then consider investing in a Roth IRA or Roth 401 (k). With these investments, you’ll pay taxes on the front end, with zero tax on your withdrawals.
You’ll also not pay taxes on your investments, including the profits you get from those investments. If you think your tax bracket will be lower in retirement, it’s advisable to invest in a traditional IRA or 401 (k). With these investments, you’ll pay fewer taxes on the front end, but your withdrawals will attract a fee.
Saving for Retirement
Saving for retirement is essential, even if you’re starting in the job market. It’s not a good idea to put it off until you are older.
Start saving as much as you can now and allow compound interest to work in your favor. Here are some other valuable retirement saving tips:
Capitalize on the 401 (k) or 403 (b) Company Match
If your employer offers a retirement plan and a company match, be sure to contribute up to the amount the employer kicks in. If your employer contributes up to 5% of your salary and matches every dollar you put into your company’s retirement account, you must add your 5% to the pool. Otherwise, you’ll miss out on free money.
Reduce Your Cost of Living
According to one study, the cost of living is the primary reason people don’t save for retirement. With the ever-increasing cost of living, you may not have enough wiggle room to deal with your daily living expenses.
Nonetheless, you can still save for retirement by comparing Eversource electricity rates and choosing the most cost-effective plan. Instead of increasing the opulence of your lifestyle to match your income increase, consider investing at least 15% of your pay increases. Remember to create a monthly budget and stick to it.