Planning for retirement is something that cannot begin too early and is a critical part of an overall financial plan. Everyone should plan as if they will live a long life in retirement.
STEP 1:
Assess the financial responsibilities you will have after your estimated retirement age. What will your living expenses be? Do you plan to travel? Do you have dependents who will continue to rely on your support? Setting financial goals is essential when making any financial decision such as planning for your retirement. Without clearly defined goals, it’s hard to know where you are going and how you will get there.
STEP 2:
Know and understand your personal financial goals which will help you determine what kind of performance (i.e., growth/yield, income, and safety) to seek from your investments. Also realize there are short-term goals, intermediate goals, and long-term goals. Retirement planning is, of course, primarily driven by long-term goals. While in the short term, there are tax consequences to consider as well as the income you forgo to reach your long-term goals.
STEP 3:
Determine your financial objectives. Depending on your type of work, age, and income, you could have many retirement investment choices.
STEP 4:
Next, when calculating your retirement income, you may want to take into consideration the following because it may increase or decrease your living expenses after retirement:
• At retirement, will you own your home? If you are mortgage-free, your living expenses will decrease.
• After retirement, will you have health insurance? Your employer-provided health insurance might not continue after retirement. Medicare or Medicaid will be available, but will that be enough?
• After retirement, do you plan any travel or lifestyle changes,? Will you work part-time?
Finally, there are a variety of strategies to include in your overall retirement plan. These “tools” can enhance your investment return, reduce your risk, or simplify your investment process.
- Asset Allocation
- Diversification
- Dollar Cost Averaging
People are living longer in retirement. A person who reaches age 65 should plan on living another 25 years, and many will live well beyond the age of 90. A person who wants to retire at age 65 will typically work for 35 to 45 years, during which time he/she will have to accumulate a retirement fund that is large enough to last 25 years or longer.