It can be easy to have an idealistic and positive view on your retirement. Whether you envision yourself laying on the beach on a permanent vacation, or you just want to enjoy your golden years with your loved ones, the notion of retiring and not having to work again is idyllic and exciting. However, retirement preparation is essential for everyone, and it allows you to plan for a number of variables.
With that in mind, here are a few of our tips on starting your financial plan for retirement, and why each one is important:
Figure out what you’ll need in retirement income.
While many people determine their retirement income by taking a percentage of what they currently make, it’s not always the best way to determine how much you’ll need, as it doesn’t take into account your particular situation. Start by looking at your current expenses, but also bear in mind those expenses will likely change before you retire, especially if you’re a good ways away from retirement. It’s also crucial to keep inflation in mind when calculating what you’ll need to live on.
Calculate any income gaps.
Take a look at your income and estimated future assets, whether said assets come from Social Security, your workplace’s retirement plan, or other sources. If you’re showing that your income and future assets won’t bridge the gap, you may have to pull from an additional retirement savings.
Determine how much you’ll need to save.
A nest egg is always crucial for a comfortable post-retirement standard of living, to make up for any gaps in your income and assets. When determining how much you’ll need to save, keep in mind a few questions. At what age do you plan to retire? What rate of growth can you expect from your savings? What’s your life expectancy? These questions and more are important to consider going into developing your nest egg.
Once you know roughly how much you’ll need to save, get started! Start by mapping out a workable savings plan, anticipate a conservative rate of return, and then use that to determine how much you’ll need to save every year to reach your pre-retirement goal. It’s also never too late to look into 401Ks or IRAs to keep your money in a safe place where you won’t risk spending it.