Retirement planning is key to achieving your retirement goals comfortably in a phased manner. Moreover, a systematic approach can effectively build a financial pot to fuel your retirement goals and old age needs. But, to achieve this, you must invest in the right direction at the right time.
Directionless investment with low to no growth is of no use. Instead, rising inflation and high taxes will put you at high risk. So to help you make informed decisions, we have curated a list including 5 tips for planning your retirement better.
How Much Funds Do You Need For a Secure Retirement Life?
One size fits all methodology doesn’t work in calculating retirement funds. Instead, it depends on several factors, such as your income, retirement age, and retirement goals. For example, some may want to travel, buy a luxury car, or want to have a comfortable retirement life.
To start with, you can stick to a general thumb rule of saving 12 years of pre-retirement annual income in your retirement pot. Similarly, avoid spending more than 4% of your retirement savings each year to have a comfortable post-retirement life.
As everyone’s needs and budgets differ, you can use a pension calculator Ireland (if you are a resident of Ireland) to work out your retirement savings.
Five ways you can plan your retirement.
1. Evaluate your retirement needs
Retirement is a critical phase of any individual’s life. It is not only an emotional roller coaster ride but an expensive affair also. So for better planning, one has to know their retirement needs in advance. Consider the following factors to set financial goals accordingly:
- Retirement age
- Monthly savings
- Investment accounts
- Retirement goals (grandchild higher education, foreign tours, or venture into new hobbies)
2. Start saving early
Undoubtedly, saving is a rewarding habit. However, the earlier you save, the more you accumulate in the long run. So, if you have not started saving, today is the right time to start. You can start with small savings and gradually increase them over time.
The sooner you save, the more chances your money has to grow with time. After all, it is all about compound earnings. For instance, you invest $10,000 and earn 5% on it in a year. So, you now have $10,500. Now, from next year, you will make 5 % not only on your invested $10,000 but also on your earned $500. It is a benefit of compounding.
Most experts advise saving at least 10% of your monthly income plus your employer contribution towards retirement savings. Here are some saving options:
- Employers sponsored retirement plans like the DB pension scheme.
- Individual Retirement Accounts (IRAs)
- Investments like your employer’s pension plan
3. Do basic math
How to save and how much to save are both equally important. How much you can save depends on the inflation and the type of investments you make. Also, understand the way your pension or savings are invested.
Additionally, you should put savings in several types of investment plans. This way, when you diversify your savings, your risks reduce and returns improve. However, the investment mix changes with time as it depends on several factors like:
- Financial circumstances
Financial security and financial knowledge both go hand in hand.
4. Never touch retirement savings.
Understandably, when you withdraw retirement savings, you will ultimately lose interest, principal, and tax benefits. You may have to pay withdrawal charges.
In case you switch jobs, you have different options:
- Leave savings invested in the same retirement plan
- Roll to an IRA
- Roll to your new employer plan
5. Understand the way social security fits in retirement planning
It may or may not be when you retire. Or it can be either reduced or replaced by any other thing. So, as of today, whatever we know about social security is as follows:
- The earliest to draw social security or spousal benefit is at the age of 62. However, the more you wait, the more money you will receive.
- In case you opt to take social security before full retirement age (at present 67), you are still working and receiving benefits, too- it limits the income you can make.
- The benefits you get can be taxed.
- In case you are a middle-income earner with hopes to have at least 80-100% of pre-retirement income- plan to get at least 40% of that income from social security.
Retirement does seem like the most relaxed phase of life. But, in reality, it requires a lot of planning and hard work. Unfortunately, most people are often seen enquiring about how to retire, but they fail to plan for it in the right manner.
So, follow these points to understand retirement planning thoroughly to have enough funds at the time of retirement.