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The average retirement age in the United States is 65. How close are you to this age?
If you’re formally employed, you might not have much control over your retirement age. If self-employed, you have greater freedom on when to call it a day. Regardless of the nature of your work, though, one thing is clear: retirement is inevitable.
When you’re retired, you won’t have an active income. This is why it’s prudent to make financial plans for your retirement in good time.
Not sure how to go about it? Here’s how to plan for retirement the right way.
1. Establish How Much You Need for Retirement
The amount of money needed for a comfortable retirement varies from person to person. That’s because we all have different lifestyles.
Therefore, the first step to making a sound retirement plan is to come up with an estimate of how much money you’ll need. There are multiple ways to do this calculation, but most experts recommend multiplying your current annual expenditure by 25. 25 is the average number of years people spend in retirement.
Remember, life is unpredictable. Your annual expenditure in retirement can be a lot more or less, mostly depending on the state of your health and the economy at the time. Either way, the figure you arrive at is supposed to be a general target. Shoot for a higher amount if you can.
2. Create a Savings Plan
Once you have determined the amount of money you’ll need in retirement, at the number of years you have until retirement, you’ll know what you need to save every year.
What comes next is a savings plan. The most straightforward way to save is to take a percentage of your monthly income and put it in a savings account.
However, if you’re like the average person, it’s unlikely that you’re going to save until you reach your retirement amount. This is why you need to be clever with your retirement savings plan. Find high-yield savings accounts and put your money there instead of a regular savings account.
There are retirement savings programs designed for people in different kinds of employment. If you’re employed by a private company, for example, a 401(k) plan is a must-have. If you’re a federal or state employee, check out Mystatepension.com to learn more about the plans that are available to you.
3. Design an Investing Strategy
Let’s face it: saving for retirement is a good thing, but on its own, it comes up short. You’ll need another source of money in retirement.
This is where investing comes into play.
There are plenty of investment options at your disposal, including real estate, stocks, and life insurance. Developing an investing strategy enables you to pick out markets that are ideal for your financial situation and risk appetite. It’s advisable to consult an investment professional to help you design and implement a suitable strategy.
If all goes according to plan, your investments will become a source of passive income during your retirement.
How to Plan for Retirement: Start Now
If you fail to prepare for retirement, you’re preparing for a miserable life in your senior years. Regardless of your current age, it’s never too early or too late to start saving and investing for your retirement. And with this guide on how to plan for retirement, you now know how to get started on a solid footing.
Explore the finance section of our blog for more money tips and advice.