Planning Ahead for Retirement
Retirement is the season in life when things start to quiet down, and the daily grind lessens, replaced by more time for relaxation, travel, and family.
But to really enjoy these golden years, careful planning is key.
Here’s an in depth guide to retirement and why timely planning is important.
What is Retirement?
Retirement is the period in life when a person chooses to leave their regular employment—usually their primary income. This typically happens around a certain age, which is approximately 50+.
This phase in life is often associated with aging but can happen whenever someone has the means to no longer work for a living.
Why is Retirement Planning So Important?
Retirement planning is important because it allows you to maintain a certain standard of living after your working years.
According to a report by the U.S. Bureau of Labor Statistics, on average, Americans spend 20 years in retirement.
Planning ensures you have enough money to cover your living expenses, healthcare, travel, and any other recreational activities during these years.
When Should I Start Saving for Retirement?
The earlier you start saving, the better.
Starting already in your twenties will allow you to take full advantage of compound interest—which can significantly grow your savings.
For example, if you start saving $200 a month at age 25, with an average return of 7%, you’d have about $525,000 by age 65.
If you were to start just five years later, at age 30, you would have $100,000 less by the age of 65.
How Do I Plan for Retirement?
Set Retirement Goals: Visualize what retirement looks like for you.
Start Early & Contribute Regularly: Compound interest works best over longer durations.
Expand Your Investments: Consider a mix of stocks, bonds, and other investments.
Use Retirement Accounts: Make use of tax-sheltered accounts like 401(k)s or IRAs.
Monitor & Adjust: Regularly review your plan and tweak when necessary.
How Much Will I Need to Save for Retirement?
A common suggestion is to aim to replace 70-90% of your pre-retirement income. However, it’s important to consider individual circumstances.
To estimate an accurate number:
- Estimate yearly retirement expenses
- Subtract any guaranteed sources of retirement income (ie. Social Security or Pensions)
- Ure a retirement calculator to adjust for inflation and market returns
What Happens if You Don’t Save for Retirement?
The biggest problem will be financial hardship. Without savings, retirees will then have to rely on limited sources of income, like Social Security, that are not always available, or enough.
Without enough savings, and limited income coming in, retirees will have to reduce living expenses (ie. Downsize housing), and run the risk of not being able to afford all necessary healthcare.
What is the Biggest Mistake People Make While Planning for Retirement?
One of the biggest mistakes people make while planning for retirement is underestimating living expenses in retirement—this includes healthcare.
According to a study by HealthView Services, a 65-year-old couple retiring now will need approximately $295,000 just for healthcare expenses throughout their years of retirement.
What is the Biggest Expense for Retirees?
Given the average age of retirees, healthcare is the biggest expense. As we get older, the need for medical services and medications usually increases.
Housing is the second biggest expense for retirees. Even though the absence of a mortgage can lesson some costs, ongoing expenses like property tax, maintenance, insurance, and utilities can still make housing a huge cost concern.
Planning for retirement may seem intimidating, but if you do it right—and early—it’s a goal within reach.
Remember, you don’t want to just survive in retirement, you want to thrive in retirement.