When you think of retirement do you dream of lounging on the beach and enjoying various leisure activities? Or perhaps you dream of traveling? Or maybe just spending more time with the grandkids. One thing is certain, I’m sure you don’t dream of having to take a job at Walmart in order to pay the bills!
Unfortunately, many people fail to begin saving early on, so they are unable to live as comfortably as they’d like in their golden years. To plan for your financial future and enjoy a worry-free retirement, there are a few important steps to take when thinking ahead.
Calculate How Much You’ll Need to Enjoy a Worry-Free Retirement
The first step to saving for a worry-free retirement is to determine how much money you’ll need to maintain your lifestyle. Use the 80/80 rule. Decide at what age you want to retire and assume you’ll need at least 80 percent of your current income to survive. Then remember that you need to plan to live to be at least 80 years old.
Note: If you plan on expensive hobbies like golf or travel you might need 100% of your pre-retirement income and with advances in healthcare you could live to be 100.
Once you know what your needs are, you need to estimate your income from investments, social security benefits, pensions, annuities, etc. By subtracting your expenses from your income you can get a good idea of how much more you will need to save in order to have that worry-free retirement you crave.
Consider Inflation and Extra Expenses
Many people save for retirement without considering the cost of inflation, which will require you to save more money due to an increase in the cost of goods and services over time. Unfortunately, as we get older our medical costs usually increase as well, so, you’ll also need to have money for unexpected medical costs that insurance or Medicare doesn’t cover. To make matters worse Medical costs are inflating faster than other costs.
Financial planners recommend planning for the possibility that you are unable to care for yourself and thus recommend a good Long-Term Care Policy.
The experts at Cornerstone Hospice and Palliative Care remind us that another expense that may not be covered by your long-term care policy is respite care i.e. “skilled nursing home care for short periods when necessary to relieve family members or other primary caregivers.”
Boost Savings Once You’re an Empty Nester
You can begin to accelerate your retirement savings by increasing the amount that you save once your kids become financially independent and graduate from college. Use your 50s and 60s to boost how much you save and adjust your budget accordingly. If you’re promoted or get a raise, you should put the majority of the extra money towards your 401(k) and maintain your same lifestyle, thus significantly boosting your savings rate.
Avoid Early Withdrawals
Taking money out of your 401(k) will require you to pay 10 percent income tax if you’re under the age of 59 1/2. Roll the money into an IRA account or to your new employer’s 401(k) plan when you begin working for a different employer to avoid losing money during the transition.
Your Retirement Fund is Not an Emergency Fund
To avoid penalties, you should have a separate emergency fund to avoid using your retirement funds in the event of an emergency.
Although it may seem overwhelming to begin saving for your retirement early, there are many practical ways of setting aside enough money to live comfortably even after exiting the workforce. You’ll be able to set specific goals and track your progress each year to ensure you can enjoy a worry-free retirement from the fruits of your labor.
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