Are you prepared for retirement? With longer life expectancy, rising healthcare costs, and the possibility of Social Security insolvency the pressure to prepare is mounting. To help you navigate the process, here’s an overview of the key factors you should consider when planning for retirement. We’ll also reveal some little-known facts that can help you plan for a successful retirement.
Whether you are just starting your retirement planning journey or looking to make adjustments to your existing plan, we encourage you to speak with a qualified financial advisor who can provide professional guidance tailored to your unique circumstances.
Tip 1: Set Realistic Goals
One of the most critical aspects of retirement planning is setting clear and realistic goals and objectives. These need to align with your lifestyle and allow you to enjoy retirement. If you under-save and over-restrict you’re setting yourself up for failure.
For example, if you value spending time with family and friends, your retirement goals may include taking a family vacation every year or having regular get togethers. Similarly, if you prioritize your health and wellness, your retirement goals may going on hiking adventures or learning to surf.
Tip 2: Prepare for Taxes
Tax planning is a crucial aspect of retirement planning. By minimizing taxes in retirement, you can maximize the amount of money you have saved to support your lifestyle and achieve your retirement goals.
For example, one tip for minimizing taxes in retirement is to manage your withdrawals from tax-advantaged retirement accounts carefully. By strategically timing your withdrawals, you can avoid triggering unnecessary taxes and penalties. It’s also important to consider the impact of taxes on other sources of retirement income, such as Social Security benefits.
Tip 3: Plan for High Healthcare Costs
Planning for high healthcare costs is the reality of aging — as you get older, your body breaks down and you have to go to the doctor more often. To manage these costs, plan ahead and consider your healthcare options carefully.
One tip for managing healthcare costs in retirement is to enroll in Medicare as soon as you’re eligible. Medicare can help cover many healthcare expenses, but it’s important to be aware of the gaps in coverage, such as dental, vision, and hearing services. You may want to consider supplemental insurance like Medigap, or Medicare Advantage plans to fill these gaps. And don’t forget about long-term care needs, such as assisted living or nursing home care, which can be a significant expense.
Tip 4: Be Selective with your Retirement Savings Accounts
Be selective with your retirement savings accounts — not all accounts are created equal. There are several types of retirement savings accounts available, such as 401(k)s, IRAs, and Roth IRAs, each with its own set of benefits and limitations. To make the most of your retirement savings, you’ll need to choose the account(s) that align with your goals and financial situation.
For example, if you have access to an employer-sponsored 401(k) with matching contributions, you may want to start there. The employer match is essentially free money, and the tax benefits of a 401(k) can help your retirement savings grow faster. However, if you’re in a lower tax bracket now than you expect to be in retirement, a Roth IRA may be a better option.
Roth IRAs are funded with after-tax dollars, so your contributions won’t be tax-deductible, but you won’t have to pay taxes on your withdrawals in retirement. Also, don’t forget to consider the fees and investment options associated with each account. With so many options available, it can be challenging to determine the best retirement savings accounts for your needs. This is where working with a financial advisor can mitigate the burden associated with picking an account and planning for retirement successfully.
The Bottom Line
There are myriad things to consider when making a retirement plan. The best idea is generally to keep things simple. If you feel overwhelmed, remember saving something is always better than nothing, and saving.
Tips for Retirement
- A financial advisor can help you save for retirement by helping create a financial plan and even managing your assets. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- A 401(k) takes pre-tax dollars and allows them to grow tax-free. You can only contribute to a 410(k) through an employer and some employers will offer a match. That’s where your employer contributes a certain percentage to your account based on how much you contribute. There is usually a limit to how much your employer will match, but even an extra thousand dollars can really help you. This free 401(k) calculator will show you how money in a 401(k) can grow between now and when you retire.
- You can also save without going through an employer. That’s where an individual retirement account (IRA) comes in. An IRA offers the same tax benefits as a 401(k) but you can open and maintain an account no matter where you work. It’s important to keep in mind that IRA contribution limits are not as high as 401(k) limits.