Guidelines for Achieving Financial Security
How ready are you for retirement? Are you putting the necessary plans in place to help you achieve financially security at retirement? Careful planning and following through is vital if you want to ease your mind and live comfortably after retirement. We are here to guide you on your financial security planning for Retirement. Here are some guidelines and advice to help you enjoy your retirement.
1. Start Early
The earlier you start saving, the better it is for you. However, if you don’t begin early, and you are close to retirement, you can still start. Every dollar saved will add up eventually. Let’s say you save $250 monthly for 40 years at an interest rate of 5%, your savings would be more when compared to that of someone else who saved for 10 year at the same rate. Savings over shorter periods would still help to take care of your expenses throughout retirement. Financial planning is not limited to savings; other areas include asset allocation. Asset allocation is vital especially as retirement looms closer, because your risk tolerance usually decreases; this usually leads to a decrease in the number of years you can recover from losses that occurred.
2. Think of Your Savings as an Expense
Some individuals may find it challenging to save regularly due to the number of expenses consumers face on a day-to-day basis. How can you protect yourself from spending your nonrefundable cash on those enticing consumer goods? You can resist this temptation if you think of your retirement saving as regular expense just like paying a car loan, rent or mortgage. It gets easier especially if your employer debits the amount from your paycheck.
FYI: You benefit from a reduction of income tax owed on your salary when the retirement savings deducted from your salary is on a pre-tax basis.
In addition, you can choose to have your salary deposited directly to your savings or checking account and have the selected savings amount slated for automatic debit, which will be credited to your retirement savings account the same day the salary was deposited.
3. Put Your Savings in a Tax-Deferred Account
If you put the amount selected for your retirement into a tax-deferred retirement account it will discourage you from spending those amounts impulsively because spending will result in penalties and tax costs. For example, any amount dispersed from your retirement account can attract income taxes the same year of the dispersal, and if you were under age 59 ½ at the time of the dispersal, this can attract an early-distribution penalty of 10%.
You can increase your savings in tax -deferred accounts especially if you have sufficient income. For example, an employer-sponsored retirement plan is good but you can also consider contributing to an IRA (Individual Retirement Account), like a traditional, roth, or a self directed IRA. Get with your financial advisors so that he or she can tell you what fits you best.
4. Expand Your Portfolio
Have you heard the old Proverb that says, “One should never put all their eggs in one basket”? This is definitely true for retirement resources. If you have only one savings option for retirement you run the risk of losing your nest egg and this can create a negative impact on your ROI (Return On Investment). Asset allocation plays a key role in handling your retirement assets. Factors applicable to appropriate asset allocation:
- Age – Your age is usually mirrored in the ferocity of your portfolio, which allows more risk taking when you are young and far from retirement and less as you get closer to retirement.
- Risk tolerance – your risk tolerance guarantees that any loss sustained will happen only at the time when you can recover your losses.
- Assets – you need to decide if you want to grow your assets or produce an income.
5. Envision Every Potential Expense in Your Budgetary Plan
What expenses should you include in your budgetary plan? Many often forget to include medical, dental, long-term care and income taxes in their retirement planning. This however is a big mistake. While making your decision about the amount you want to save for retirement, you should list all the expenses you are likely to acquire throughout your retirement years. A list will help you make the right projections and plan effectively.
It makes no sense you save a lot of money and then have to use high-interest loans to cover your living expenses. Preparing and keeping within your budget is not an option, it is a necessity. If you treat your savings for your retirement as a budgeted regular expense, you will be able to calculate your disposable income correctly.
7. Review Your Portfolio Occasionally
Reviewing your portfolio occasionally becomes necessary because your expenses, financial needs and risk tolerance will change the closer you get to retirement. Your portfolio will require strategic asset allocation to make way for any needed modifications to maintain your retirement goal. An occasional review of your portfolio will help you stay on target with your retirement plan.
8. Review Your Expenses and Make the Necessary Changes
It is quite possible that changes will occur in your income, your lifestyle, or financial responsibilities. When this happens, review your economic situation and make the adjustments needed to modify the amounts you are adding to your retirement purse. For example, you have finally paid off your car loan, or your mortgage or you no longer have dependents to maintain. By reviewing your income, expenditures and financial commitments, you are better able to increase/decrease the amount you are currently saving towards retirement.
9. Think about Your Spouse
Are you married? Is your spouse saving towards retirement? If your spouse is saving for retirement, what expenses can you share to make you both more comfortable during retirement? If not, can your retirement savings cover the expenses for both of you?
10. Hire a Competent Financial Planner
Hiring a competent financial planner is a good option especially if you are inexperienced in portfolio management and financial planning. Selecting the one ideally suited for you will be the best decision you will make.
The guidelines we suggested here can influence your retirement plan positively or they can determine your level of financial security during retirement. The financial planner you chose will point you to other factors if necessary. However, starting early will make the task less challenging but remember it is never too late to embrace some of these guidelines even if you are currently retired.