Retirement might still seem far away, or it may be right around the corner. Regardless of where you currently are in your life, you should be making steps toward a successful retirement. Planning ahead of time will help to ensure your success, but until you reach that milestone, it can be difficult to understand what your needs and experiences might be. Here are some of the ways you can prepare for retirement right now, no matter where you are in your financial-and life-journey.
Figure Out the Timing
In order to start preparing for retirement, you’ll need to know when you actually plan to retire. Do you want to retire early, or is the average of 65 to 70 years old acceptable for you? Once you have an idea of your timing, you will understand how long you have between then and now to accomplish your savings and other goals. Those with a shorter horizon will need to be more aggressive or plan to live on a lower sum later.
Identify Big Spending Goals
With retirement comes potentially larger purchases than you may have planned for. For those hoping to retire early, the cost of healthcare in those first, intermediary years can come as an unexpected surprise. Many retirees also hope to fund bigger expenses like world travel, visiting distant family or helping grandchildren pay for college. These are not directly related to the day-to-day costs of living in retirement, but they should still be factored into the budget. Start saving for these expenses now, or you may have a hard time catching up later.
Estimate Your Spending and Needs
Many people assume that they will spend less money in retirement than they do now, but this is not necessarily true. More free time means more opportunities for costly leisure activities like eating out and traveling. Use your current spending as a basis for understanding what you expect your lifestyle to be later; many people have difficulty living on less than they do now.
Develop Income-Generating Skills
Retirement may throw you some curveballs that drain your saved money faster than expected. One of the best ways to combat this is to pick up a part-time job or another means of income after you retire. Now is the time to start developing those skills. Consider picking up a hobby that could turn lucrative or learning more about a new field so that, after retirement, you can still generate some income on the side if needed.
Choose Income-Growing or Income-Preserving Tools
Of course, the monetary aspect of saving for retirement is what many people think of first when they think of preparation-and for good reason. Make sure you are selecting vehicles (401(k)s, IRAs and more) that are suitable for your goals. If you plan to retire early, some of these options will charge you a fee for early withdrawal. Others will tax you differently depending on how long the money has been in the account.
Plan for income growth (or income preservation without stock market risk) based on your age, risk tolerance and distance from retirement.
Eliminate Debt Early
It is wise to eliminate as many bills as possible before you retire because debt can be a significant burden in your older years. Aggressively paying off debt now can leave you with more free money in retirement. And as an added bonus, paying debt quickly prevents it from accruing as much interest, saving you money over the life of the debt.
Forgo Social Security as Long as Possible
Social Security checks help people cover the gap between their savings and their monetary needs in retirement, but you do not need to take SS checks as soon as you cross the retirement threshold. If you have enough money to responsibly cover your bills for the first few years, delaying your Social Security means you will receive more later. This can help you to recoup some of the money you spend in your first few years of retirement and prop you up against inflation more effectively later.
Trust the Pros to Help You Plan for Retirement
Retirement can be both exciting and scary, especially if you do not feel confident in how to prepare ahead of time. The good news is that you can take small but powerful steps now to secure your finances in the future. The professionals at Inflection Advisors can act as a sounding board to provide guidance and advice on your retirement saving strategy. Reach out to learn more or to schedule an appointment to get started.
