Making retirement plans can be a daunting task. The purpose of this article is to provide a starting point for anyone wanting to have a financially secure retirement, and make planning for retirement easier.
First, consider these principles as you begin to plan for your eventual retirement.
- The earlier you start, the better. If you look up at age fifty and realize you have no nest egg and a pile of debt, you will need to work harder and sacrifice much more than if you had begun your retirement plans in your twenties or thirties.
- Be flexible. The retirement lifestyle you think you want at age twenty-five may have completely changed by age forty.
- Give yourself a reason to live once you retire. Will you do volunteer work? Travel the world? Work a hobby farm? Having a goal not only makes the retired life more appealing, but also will serve as an incentive to carry through with your retirement plans.
Having understood the principle of mapping out your plan, you next need to ask yourself some key questions that will aid the process.
Do I need a financial adviser?
A financial adviser can be helpful in creating retirement plans to people who know nothing about investing. Unfortunately, many – and I mean many of them – care more about how much commission they can make, rather than what is best for you. Your best bet is to ask around to get referrals, and do not keep any that you feel is not working in your best interest.
Another option is to work with a financial adviser for a few years, until you’ve got a handle on the various retirement vehicles out there. At that point, you can begin to confidently invest your money on your own. On the other hand, nowadays the average Joe can easily find reputable companies with good-growth mutual funds of all shapes and sizes, simply with a few clicks of a mouse. You may decide you don’t need an adviser after all.
How much money will I need in my retirement fund by the time I leave the work force?
This is the pivotal consideration when making retirement plans. In order to determine this amount, you need to consider the lifestyle you want after retiring, how long you hope or expect to live, how much you want to leave to your descendants, and inflation.
It is a rough estimate that will change numerous times during your income-earning years, but it gives you a place to start. One million dollars is a realistic goal if you are at least twenty years from retiring.
At what age do I want to retire?
Twenty years from now? Thirty? Forty? Answering this question is imperative in order to figure out the next question…
How much will I reasonably be able to invest every month to meet this retirement-age goal?
This will depend on how much you make, and how much you can save out of your monthly take-home pay. This amount also should grow as you progress on your career track, so figure you will be able to invest at least five to ten percent more per year during your income-earning years.
What kind of financial vehicles will best help you meet your goals?
First, set up an IRA, 401k or 403b, depending on what kind of job you have. Put at least half of what you want to invest every month into one of those, as the money will not be taxed in any way until you start withdrawing it.
Next, select the funds you want to invest in inside your retirement fund. A mutual fund with a long track record that averages a twelve percent return over a 20-year period is best.
You can also invest outside of federally regulated retirement funds. Just know that you will pay tax on both the money you deposit into them, and the returns you gain every year.
Annuities are often considered lower-risk options; however, they will never even come near the returns that mutual funds bring. Stay away from Equity Indexed Funds, as they are even worse.
And while any bread-winner with a family should carry term life insurance, do not touch universal, or cash-flow, life insurance policies with a ten-foot pole. You will never get back all you put into them, and the returns are generally miserable.
Start answering these questions today, and get your retirement plans in order!