Financial planning for retirement can seem overwhelming when you think of it as a one big project. However, if you break it down into simple goals, it’ll be easier to stay focused and meet your target.
The earlier you start planning for retirement, the better. Not only will you have more time to save up the required amount, but you’ll be able to recover from any mistakes or losses (from investments) that you may make.
Below you’ll find a few financial goals that you’ll want to strive towards.
- Save 6X to 10X your annual income
If you’re earning $60,000 a year, you’ll want to save anywhere from $360,000 to $600,000 in a retirement fund. It may seem like a lot, but with time and a solid savings plan, you’ll be able to save this amount.
The idea here is that if you save 10X your annual income, you’ll be able to cover 10 extra years of expenses or more, if you reduce your expenses.
- Pay off debt
The faster you eliminate debt, the easier it will be to save. You can channel your debt payments to your retirement account. You’ll be amazed at how much faster your savings grow when your income is not being depleted by debt.
- Start a Roth IRA
A Roth IRA will allow you to save your money in an account and let it grow tax-free. You’ll enjoy tax-free withdrawals in retirement.
- Be well-insured
As you age, health problems may crop up. Having health insurance will help protect you from having to pay for massive medical bills.
Ideally, you should sign up for a solid health insurance plan when you’re young because the premiums will be lower. If you choose a policy that has a maturity date, you’ll get a lump sum when the policy reaches maturity.
- Estate planning
Hire a professional to help you with estate planning. Decide how your assets will be allocated among the beneficiaries and so on. Even if you don’t feel like you’re wealthy, estate planning will make things much easier when it comes to deciding what to do with your home, bank accounts, etc. once you pass on.
- Get a 401(k) match
This is one of the best ways to max out your retirement account. If your employer offers 401(k) match, you should contribute the maximum amount you can to your annual 401(k) contribution.
Your employer will then match a percentage of your contribution and you’ll have more savings in your 401(k).
- Invest wisely
Once you’ve saved up a certain amount, you should deposit some of your money in a certificate of deposit (CD) account or a money market account. Your savings will be safe here and your money will accrue a higher rate of interest.
You’ll also want to consider investing in bonds and stocks so that you can grow your money at a faster rate. However, you must assess your risk tolerance and make sure you know what you’re investing.
It’s always best to be extra cautious when investing your retirement funds.
- Save on fees
When investing, you’ll be required to pay fees to brokerages and so on. Your goal should be to reduce your fees as much as possible. Avoid investments that have loads (mutual funds) and investments where the brokers get a commission.
Brokers are often paid high commissions to push certain funds, etc. and their suggestions will be in alignment with their own vested interest rather than doing what is good for you. So, exercise due diligence here.
- Reduce your expenses
A dollar saved is a dollar earned. As you get older, you may wish to downsize to a smaller home, if it’s just you and/or your spouse. Not only will you be able to flip your current home and make a profit, but the costs of maintaining a smaller house is significantly lower.
You’ll spend less and can stretch your savings out further. This is just one way to reduce your costs. There are many other ways to cut your expenses, if you’ll look for them. The more money you have saved up for retirement, the more flexibility and peace of mind you’ll have. Focus on the goals above and you’ll be well on your way to a comfortable retirement.