Have you calculated how much money you’ll need to live comfortably in your retirement years? No doubt you’re saving for a retirement date that probably feels nebulous and impossibly distant, but have you actually run the numbers to know how much you’ll need?
Let’s say you’ve saved $1 million for retirement and you live for 20 years after you retire. You’d have access to up to $50,000 a year. That may sound like enough to you, until you consider that it’s probably far less than you’re earning right now… and inflation may skyrocket in that timeframe… and you could live a lot longer than those 20 years. This is precisely why you need to stop saving blindly for retirement. The way to really, truly prepare yourself for your golden years to eliminate your fear of the unknown. Here are some strategies you can implement now to start thinking critically and carefully about preparing for retirement, no matter your age:
Retirement Investing Techniques
- Invest in yourself: The most basic way to combat fears of the unknown is to invest in your financial education. You should learn much more than just how to follow the stock market; you should learn how to read financial statements, how to assess the benefits and risks of an investment, and how to leverage your investments for maximum return and minimal taxation.
- Become more cognizant of your spending: Everyone deserves to spend their hard-earned money as they wish in the pursuit of happiness, but you also must consider that money is a finite resource. The things that seem important to you now while you’re earning a steady paycheck may not seem so important to you later in life – when you’re living on a fixed income and have mounting healthcare expenses and other age-related expenses. Therefore, you should become aware of how you’re spending your money now, to make sure your present-day expenses don’t hinder your financial security in your golden years.
- Understand how bear markets impact your retirement: For simplicity, many people assume their 401(k) and other retirement accounts will yield a standard annual rate of return, perhaps 8% a year. With compound interest, that can add up to a sizeable nest egg by your golden years. But what happens if your investments become the victim of a bear market just as you’re approaching retirement or, worse, after you’re already retired? If you were to lose 30% of a retirement portfolio valued at $1 million, you would need your portfolio to rise by nearly 50% just to get back to where you started! You cannot ignore this possibility in your financial planning.
- Recognize that a $1 million retirement goal isn’t sufficient: The average American tends to think the magic number at which to retire comfortably is $1 million. But given that so many factors are out of your control – inflation, soaring healthcare costs, how many years you’ll live – an artificial number really isn’t the smartest way to plan for retirement. The secret is to cast aside traditional retirement savings vehicles and instead develop a comprehensive wealth management strategy that provides security and liquidity and acts as a hedge against inflation.
- Don’t let Uncle Sam poach your retirement nest egg: With traditional retirement savings plans like the 401(k), you’re going to be paying taxes on your money as you withdraw it. And when you die, unless you’ve proactively taken proper precautions, Uncle Sam is going to tax your estate before your loved ones get a penny of it. Given these unfortunate scenarios, you need to think creatively, and legally, to get around paying these taxes to the government. Whole life insurance, which involves a private contract between you and a mutually owned insurance company, is one of the best out-of-the-box solutions, because as a private contract it cannot be taxed.
While you may think you’re on solid footing by putting aside money for retirement, you actually could be in big trouble if you’re not truly planning for it. The keys to preparing for retirement, no matter your age, are to invest in your financial education, become more conscientious of your spending, understand how bear markets impact your retirement, recognize that an arbitrary retirement goal is insufficient, and think creatively to avoid letting the government impose heavy taxes on your retirement savings.
Learn more about preparing for retirement, no matter your age, in our webinar – Getting Ready to Retire at Any Age.
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FAQ
Q: Is there an ideal age to start preparing for retirement, or is it never too early or too late to begin planning?
A: Retirement planning can start at any age, and the earlier one begins, the more time there is to build savings and investments. However, it’s never too late to start preparing for retirement, as even late planning can yield benefits.
Q: What are some key steps individuals can take to kickstart their retirement preparations regardless of their current age?
A: Individuals can begin by setting clear retirement goals, creating a budget, saving regularly, exploring investment options, and considering retirement accounts like IRAs and 401(k)s, tailored to their age and financial situation.
Q: How can financial advisors assist individuals in making the most of their retirement planning efforts, regardless of their age?
A: Financial advisors can provide personalized guidance, assess retirement readiness, and develop strategies that align with individuals’ specific financial goals and circumstances, ensuring effective retirement planning at any stage in life.
