No-one wants to work forever, at least not in a 9-5 job, with a long daily commute and lots of stress. Casually working at home on your favorite hobby sounds a whole lot better, right? That’s why you need solid retirement planning. This article aims to answer the question of how to plan for retirement by providing a simple retirement planning guide!
Retirement Planning 101
So if you are at that place in your life, where you can see the light at the end of the tunnel, and thinking about retirement gets you all excited (well at least until you think about the financial implications of stopping work), then you have come to the right place.
In fact, the difference between those that retire successfully and those that do not, is retirement planning. With a clear eye on what you want and need for the future, a good retirement plan can do miracles, no matter where you currently stand financially.
So if you have paid your dues, and have diligently invested in that 401k or pension, you have done most of the work! All that remains is to invest that retirement money wisely to make sure you are set for life!
There are two main steps to getting retirement investment right.
1. Be honest with yourself
Before you can start retirement planning, you first need to understand your personal financial requirements properly.
To do this there are several questions you can ask yourself and your spouse.
You can even discuss these questions with your financial advisor, or if you do not have one, you can consider getting one. The beauty of a financial advisor is that they can provide professional input on investments and their future prospects that you may not be aware of.
Ask yourself the following questions:
- When do I want to retire? In other words, how many more years of earning an income do I have left before I want to retire? The time frame attached to your retirement plan has significant impact on the way you invest your hard earned money and plan your retirement.
- What do I want to do when I retire? Do I want to travel or buy a retirement property? You should consider any yearly holidays or trips you may want to take, or any expenses relating to a hobby that may come up in the future. Buying an RV? Yes, factor that in too!
- What do I need to plan for in terms of medical requirements and healthcare? Do you have some healthcare issues that may get worse over time and may need permanent care or hospitalization in the future? Naturally, we cannot foresee medical emergencies, but we can prepare for the unknown medically – so that you and your spouse are covered if any medical emergency arises.
- What will my living expenses be on a monthly basis when I retire? Will it be vastly different than now – or will it remain more or less the same. This depends on what you plan to do when you retire. Factor in living expenses, medical costs, any bonds or insurance funds you currently have.
- Do I have any debt that needs to be paid off before I retire? Can I set up a payment plan to make sure the debt is paid off by the time I retire, or do I need to factor the debt into my financial retirement planning?
- Am I responsible with money, or do I tend to overspend? Although this is a tough question to answer, if you are honest with yourself about how you manage money, you can invest your money so that unplanned spending is curbed to a certain extent, thereby protecting your long term investment.
2. Invest your money wisely
Once you are aware of what you and your partner’s needs will be for retirement, planning your financial investments will be much easier. This is a crucial step in the retirement planning guide.
If you are unsure about the advantages, disadvantages and risks of investment plans, talk to an experienced financial advisor about your needs and how to best invest your money.
- Understand your risk profile. How willing you are to take investment risks with your money will depend on how much money you have and for how long you want to invest it. High risk investments, such as stock shares, typically yield higher returns, if you are willing to wait and ride out some of the bumps. If you are not comfortable with risk, more secure investments such as fixed income bonds may be a better option.
- Evaluate your options. Naturally your financial advisor can help you with this, but per this retirement planning guide, it is always good to have some idea of what your options are when investing money for your retirement. Here are some to get you started:
- A total return portfolio is geared for long term investment (10-20 years) that aims to meet or exceed your annual withdrawal rate. This plan has a set of withdrawal rate rules that you need to abide by, and typically they allow a withdrawal of between 4-7% per year. This is a great option for someone with an advisor, or who is a bit more investment savvy, and enjoys managing their own income.
- Retirement income funds. These funds have been constructed from a mixture of investments that include stocks and bonds, and yields growth to allow a monthly payout to you. You have more flexibility of access to the principal investment, but be aware that withdrawal from the principal will influence your monthly income.
- Immediate annuities. Although this is a form of insurance, their goal is to produce income, and they are considered a viable investment option if you obtain them through a trusted insurance company. Basically you are ensuring your future income, so in exchange for a lump sum of money, the company will guarantee your income for a set period of time.
- Bonds. These investments are lower in risk and have a payout of the lump investment sum after a set amount of years. In the meanwhile you earn interest on the money you invested, that can provide you with a form of income.
- Property. Naturally this is a form of investment depending on the state of the market and the time frame you want to work in. There are also some costs associated with property such as maintenance and insurance, and provision for emergencies that you need to budget for.
I hope this retirement planning guide has you thinking logically and systematically about your future. This will help ease your mind when it comes to retirement planning and your retirement financial plan.
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