Retirement is a time in your life that you should be able to relax and enjoy yourself. You should be able to travel, pick up hobbies, go on leisurely walks, and read a book whenever you want. The last thing you should worry about during retirement is your finances. This is why it is important to start planning for retirement at a young age.
A survey from 2019 showed that Americans believe that they need to save $1.7 million to be able to retire comfortably. This is of course not a small amount of money. It takes time to build this type of retirement savings. Most Americans are not investing enough money to reach this retirement savings goal.
Here are some tips that will help you plan for retirement and make sure you have enough income to live on.
The first thing you need to think about is what will your retirement expenses be. There are a lot of formulas that can help you estimate your retirement expenses; however, these are merely educated estimates. One popular method to estimate is that you will need about 80% of your pre-retirement yearly spending amount during retirement. The reason your expenses will go down is because there are some expenses you will no longer have like commuting to work. Some retired folks have said that their expenses increase during the first few years because of all the free time to travel, go out and spend money.
It is common for expenses to go through three phases during retirement. They are:
- Increased spending early on
- Average spending for a long period of time
- Higher spending towards the end because of medical expenses.
Standard Of Living
As you near retirement, you will be able to get a better grasp of your standard of living. You will be able to understand if you will be able to sustain your current standard of living or if you will have to adjust during retirement. You can use this as a base expense and add on other fixed expenses that you expect during retirement.
Now that you have an idea of how much you will have saved and how much you will spend a year, you need to find ways to earn money during retirement. You can invest money in a number of different ways like annuities, bonds, real estate, and stocks. You can always hire a financial advisor to help maximize your earnings during retirement.
If you have been working and have been contributing to social security for at least 10 years, then you can qualify for social security retirement benefits. You can benefit from your social security contributions as early as the age of 62 and as late as 70. For 2020 the social security monthly benefit is:
- $2,265 if you file at age 62
- $3,011 if you file at full retirement age (currently 66)
- $3,790 if you file at age 70
Planning for retirement is not easy. It is also not something that can be done overnight. You have to create a plan early on in life and adjust the plan if needed. Having a successful retirement fund is not only based on the execution, but it is based largely on the planning. If you feel like all of this is overwhelming, then you should definitely look into hiring a financial advisor. There is no better time to start planning for your retirement than right now!