8 Retirement Planning Tips to Map Out Your Financial Success
If you plan to have a financially secure retirement, you must prepare for it in advance. Retirement can be a luxury if you have enough funds to last you a lifetime. However, this can be a bit complex as you may have to plan for a time that is way ahead in the future. Assuming you start saving for your retirement in your 20s or 30s, you may have another 30 odd years till you retire. If you plan to retire early, the planning and preparation time may be cut short, but you would need to save more vigorously to ensure complete financial security post-retirement.
You may come across various retirement planning tips from all kinds of sources. Books, financial experts, blogs, and even YouTube and TikTok videos are full of information on how you can plan your golden years. All of this advice can sometimes seem like noise. The lack of proper strategies and a streamlined approach to achieving your unique goals can be hard to tackle. However, retirement planning is not all that tough. You can ensure complete financial security if you understand what you need and are consistent in your saving and investing patterns. When planning for financial success, you can follow specific tips that can ensure that you are on the right path. These tips can help you plan ahead, monitor your progress so far, and make revisions to your plan based on your changing needs and lifestyle. If you are looking for retirement planning tips on how to build a substantial retirement corpus, reach out to a professional financial advisor who can advise you on the same.
Here are some retirement planning tips to consider to have a wholesome and comfortable retirement.
1. Do not rely on Social Security benefits only:
Social Security benefits can help you add some weight to your already existing retirement pool. On average, Social Security can replace about 40% of your earnings. However, given the reducing value of the Social Security benefits check, relying solely on it can eventually create issues in your retirement planning. The money you contribute to the Social Security system is primarily invested in bonds and other similar securities that generate interest. This means that when interest rates increase, your money compounds more. However, your Social Security check would reduce when the interest rates drop. Off late, the interest rates have been consistently low for a few years. This has impacted the overall Social Security program. In addition to this, the longevity risk is also a significant reason why Social Security benefits have lost some value over the years. People today live a longer life than the generations before. While this may seem like an advantage, it also means that your Social Security benefits pool is unable to cover you for a lifetime. One way to tackle this problem can be to delay claiming your benefits. For instance, for every year you delay your Social Security benefits, you can increase the value of your monthly check. Claiming your benefits prematurely before your full retirement age can also be problematic. For instance, if your full retirement age is 66, but you claim Social Security at 62, your monthly benefit will be reduced by 25%. So, make sure to keep these factors in mind.
2. Maximize your 401k contributions:
The 401k is a tax-advantaged account that can help you plan for your retirement with a lot of ease. This is an employer-sponsored plan, and most companies offer it to their employees. If your company provides you with one, you may aim to contribute to it up to the contribution limits set by the Internal Revenue Services (IRS). An excellent advantage of using a 401k is the employer’s match that can let you save more. For every dollar you contribute to the plan, your employer can match your contribution and contribute to your account. This is basically free money that gets added to your account and is compounded over time until you withdraw your funds in retirement. The 401k contribution limits 2022are as follows:
- $20,500 for those aged below 50
- $6,500 + $20,500 for those aged 50 or more, bringing the total to $27,000
Irrespective of your income or investments, it may be advised to contribute up to the maximum limit set by the IRS. The more you contribute, the more you stand to gain from your employer’s match too. So, this is a win-win situation.
When using a 401k, you must also pay attention to its types. There are two types of 401ks – a traditional and a Roth account. The former is taxed when you withdraw your money, and the latter is not. This is because your contributions to a traditional 401k are tax-deductible, and the ones to your Roth 401k are non-tax-deductible. So, you can choose one based on how you foresee your tax situation to be in the future after you retire. An important thing to remember is that since a traditional 401(k) account is taxed in retirement, it has mandatory required minimum distributions (RMDs) from the age of 72. In addition to this, you can also take professional help from a financial advisor to decide the appropriate investments for your 401k. 401ks offer options like bonds, stocks, mutual funds, target date funds, exchange-traded funds, etc. You can pick any of these as per your requirements and financial goals.
3. Add an Individual Retirement Account (IRA) to your portfolio:
An IRA is similar to a 401k. However, it is not an employer-sponsored plan. You can open one yourself based on your needs. Banks, credit unions, mutual fund houses, life insurance companies, and brokers offer IRAs. You can pick any one of these options. An IRA can be beneficial for those who do not have a 401k. But they can also be used by those who have a 401k. Just like the 401k, an IRA also has two types based on taxability – A Roth and a traditional. Here are the traditional and Roth IRA income limits and contributions for 2022:
| Filing status | Modified Adjusted Gross Income (MAGI) | Maximum annual contribution |
| Single, head of household, or married taxpayers filing separately | Less than $129,000 | $6,000 or $7,000 if 50 or older |
| $129,000 up to $144,000 | Contribution is reduced | |
| $144,000 or more | No contribution allowed | |
| Married taxpayers filing jointly or qualifying widow(er) | Less than $204,000 | $6,000 or $7,000 if 50 or older |
| $204,000 up to $214,000 | Contribution is reduced | |
| $214,000 or more | No contribution allowed | |
| Married taxpayers filing separately | Less than $10,000 | Contribution is reduced |
| $10,000 or more | No contribution allowed |
To benefit from an IRA, make sure that you maximize your contributions. This can be a lot simpler than a 401k, as IRA contribution limits are relatively lower. So, you can quickly meet them and plan for your future. An IRA also offers similar options like the 401k for investment, such as money market accounts, certificates of deposits, mutual funds, stocks, exchange-traded funds, etc. You can pick any of these according to your goals.
4. Plan for healthcare expenses:
Healthcare is one of the biggest concerns in retirement. Medical inflation has been rapidly increasing, and covering the costs of basic medical procedures is more complex than ever. Your health expenses will eventually increase as you grow old. The natural aging process of the human body is bound to catch up with you someday. One of the best ways to tackle these expenses can be by investing in a good health insurance plan. Health insurance, critical illness insurance, long-term care insurance, etc., are all necessities to ensure that you get the care you need and are able to focus on your health and not worry about hospital bills. Another option can be to use a Health Savings Account (HSA). The HSA is a tax-advantaged account that can be used if you are covered under high-deductible health plans (HDHPs). The account can be used to save for qualified medical expenses in retirement, including medical costs, dental expenses, vision care, prescription drugs, etc. You and your employer can both contribute to the account according to the HSA contribution limits. The maximum HSA contribution limits 2022is $3,650 for an individual and $7,300 for a family. This is applicable to the total of the employee and the employer’s contribution. There is also an additional catch-up contribution of $1,000 for individuals aged 55 years or older.
Apart from the accounts mentioned above that you can use to ensure financial success, you can also consider the following tips:
5. Start planning for your retirement early:
Retirement planning is a long process that can take years to finish. Therefore, starting early is vital to get a good start. The longer the investment term, the more your money can compound and deliver better returns. Starting retirement planning at a young age also ensures that you are not burdened with financial troubles later in life. You can comfortably break down big goals into smaller milestones and achieve them slowly and steadily over time. Overall, this enables you to live a stress-free life.
6. Track your expenses and budget accordingly:
It is important to track both essential and non-essential expenses to ensure that you optimally use your money and do not waste it on unimportant things. While essential costs may be hard to eliminate, they can be reduced. For instance, commuting to work may seem unavoidable, but you can consider changing your mode of transportation from a cab to the subway or a carpool to lower your expenses. In the case of non-essential costs, you may have to plan a bit more because these can be the hardest to ignore. The impulse to shop along, the peer pressure to maintain a certain social status, and other similar issues can come in the way. However, tracking your expenses can give you a clear picture of what you need to do to curb your expenses. It can help you plan your expenditure more efficiently and smartly and prioritize your needs over wants.
7. Make room for inflation in your financial planning
The inflation rate in the country is over 8% right now. This is largely because of the pandemic and the Ukraine and Russia war. However, inflationary periods can occur for a number of reasons. This may be an extreme, unprecedented situation, but it can reappear in the future as well. Therefore, accounting for it in retirement planning is critical. While it can be complex to precisely account for inflation in your plan, you can keep some buffer for it. You can also use inflation calculators to get an idea of how much you need to save for the future. Additionally, you can also invest in inflation-beating investment options like stocks, equity mutual funds, exchange-traded funds, etc., to ensure that you have a sufficient retirement fund that can offer returns in tandem with inflation.
8. Take help from a professional financial advisor:
Hiring a professional financial advisor can offer you an edge over others. It can be confusing to make sense of the fluctuating market, recession, inflation, new investment opportunities, etc. Most people stick to traditional methods because of a lack of proper understanding of the options in front. However, a professional can help you plan for your future with greater ease and minimal doubts. Getting professional advice can be a continuous process or something to opt for from time to time. You can make a decision based on your needs and future goals.
To summarize
Retirement planning does not have to be intimidating all the time. While getting started can be a bit overwhelming due to a lack of knowledge, things will soon pan out in your favor if you stay put. The more time you invest in your retirement plan, the more you understand the process better. You can also keep reading books, consulting experts, referring to journals, etc., to improve your financial acumen and take charge of your money. The most critical thing is to be consistent and invest your money in inflation-beating and tax-advantaged instruments like 401ks, IRAs, and HSAs, among several other options, to ensure that everything is on point and you can reach your retirement goal at a steady pace.
Moreover, if things get complicated, you can always hire a financial advisor and get customized help in return. Use Paladin Registry’s free advisor match tool and get matched with 1-3 qualified advisors who may be able to help you with your unique financial goals and requirements.
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