Are you prepared for retirement? As your retirement draws closer, each day means you have less time to optimize your financial situation. Your retirement should be the best years of your life, so don’t get catch unprepared.
A lack of retirement preparation could leave you feeling financially unstable, stressed, and overwhelmed during a time in your life when you should be relaxing. Creating a plan for your retirement as soon as possible is the best thing you can do if you want to retire happily.
Here are 11 retirement tips to help you prepare for a successful retirement…
1. Create a savings plan
Depending on their individual circumstances, some people may find it difficult to save. When your paycheck has been claimed before it even hits your bank account, it may seem like it is impossible to save; however, saving money can be simple.
The less money you save now, the less money you will have once you retire, so creating an effective savings plan is one of the many keys to a successful retirement. You can easily save money just by budgeting and cutting out unnecessary expenses. And the money that you save every year, month, week or day can be put into a retirement savings account.
2. Review alternative retirement savings options
Your goal should be to save as much money as possible before you retire. A savings account is usually the first thing people think of when they want to save money, but there are smarter options available for those looking to grow their money in a smarter way.
In addition to having a traditional savings account, there are other options that can help people prepare for retirement, such as employer-sponsored retirement plans, IRAs, HSAs and more.
Not all of these alternative retirement savings options may be available to you depending on your situation. For example, some employers do not offer their employees retirement plans. If you find that your employer does not offer a retirement plan, don’t hesitate to recommend or request that they start one.
3. Calculate how much money is needed for retirement
Northwestern Mutual’s 2019 Planning & Progress Study found that 22% of Americans have no more than $5,000 saved for retirement. Many Americans want to maintain their lifestyle or standard of living once they retire, but not even half know how much money is needed for retirement and what it would take for them to live life as they have been by the time reach retirement age.
Knowing how much to save is important, and examining your needs would be helpful in determining the ideal amount of money to put away for retirement.
When calculating how much money is needed for retirement, consider the following:
- Mortgage/rent
- Food
- Clothing
- Transportation
- Recreation/leisure
- Healthcare (medications, doctor’s visits, etc.)
- Insurance (home & auto)
- Vehicle maintenance/repairs
- Home improvements/repair
4. Calculate your potential monthly Social Security benefits
When you reach the age of 61 years and 8 months, you are eligible to apply for Social Security benefits; however, payments won’t begin until the age of 62.
The average monthly benefit amount paid by the SSA is $1,177. If you calculate your potential Social Security benefits, you will get a better idea of how much money you will need when you retire.
Pro tip: Just because you are eligible to receive benefits at the age of 62 doesn’t mean you have to apply at that age. In fact, waiting a few years to claim these benefits means you’ll receive a higher amount than you what you would receive if you claim theses benefits at 62 years old.
5. Avoid withdrawing from your retirement savings
It can be tempting to dip into your retirement savings when you need some extra cash. The money is yours, and you can do with it as you please, but withdrawing from this account means less money for you in the future.
Rather than take money from your retirement savings, create an emergency fund that is designated for those unexpected expenses, such as home and auto repairs.
As you review your income and expenses and create your savings plan, you will want to figure out how you can put money into your retirement savings account and into your emergency fund. Even if you are putting only $50 into your emergency fund every month, you will be taking less money from your retirement savings.
6. Pay down as much debt as possible
The amount of consumer debt has steadily climbed over the years, totaling more than $13 trillion in 2019. As people continue to accrue debt in the four major areas (credit cards, student, home and auto loans), they will likely take longer to repay these debts because they keep growing.
Paying down your debt before retirement means you get access to more of the money you have put away. Making larger payments on your mortgage, negotiating with your creditors to settle your debt for less than what is owed or simply making on-time payments every month can reduce your debt by the time you retire.
7. Determine what age you plan to retire
Although people often retire at the age of 65, many work past that age. Whether it is by choice or necessity, working past the age of retirement has its benefits, including more money in your retirement savings account. Additionally, those who decide to work past retirement age have the opportunity to pay down more of their debt and relieve themselves of financial burdens.
8. Choose what city and state you will live in
It is common for people to move to a different state or country when they retire. Although this may be years away, it can be helpful to determine what city and state you will live in once you retire because your location can ultimately affect your comfort and your happiness.
The cost of living varies from state to state, and in order for you to plan, you need to know how much it costs to live in each state you are considering. For example, say you were to move from Wisconsin, where the annual cost of living is $40,000, to Arizona, where the annual cost of living is $65,0000, you may think twice about the move if affordability is a concern.
Pro tip: Consider moving to a state with no state income tax. As of 2020, the following states don’t have a state income tax:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
9. Invest to build your wealth
People fear investing because either they don’t know how to invest or they’re afraid of the risks involved.
Between stocks, bonds, real estate and more, there are many ways you can invest safely and increase your wealth. Sure, you will have money put away for retirement, but even after that day comes, you’ll have income from these investments. For example, if you were to purchase a home as a rental property, you will continue to receive payments from tenants of that property.
Investing in real-estate can be fruitful, but keep in mind that there will be various expenses related investing in a rental property:
- Advertising
- Maintenance/repairs
- Tenant screenings
- Property taxes
- Insurance
Do your research before jumping in!
10. Speak to a financial advisor about retirement planning
A financial advisor is not necessary if you feel as though you have a good grasp on what it takes to properly plan for retirement; however, it is always a good idea to speak to an expert when it comes to finances.
Financial advisors are equipped to answer questions and offer guidance to consumers who are unsure of various finance-related topics.
Pro-tip: Most banks offer free access to a financial advisor — we recommend taking advantage of this perk.
11. Set a retirement goal
The goal of planning for retirement is to make sure you can live happily and comfortably when you retire. Asking questions, reviewing expenses and doing the necessary calculations can help you determine how much you’ll need for retirement. With this information in hand, you’ll be able to set a goal for your retirement.
If you know that you want to save $1 million for retirement, then you will be able to determine how much you need to save annually in order to reach that goal.
People look forward to retirement, but this stage of your life may be an unhappy one if you fail to plan properly. Retirement planning may not seem as urgent, especially when you have short-term savings goals to meet, credit card payments, medical bills and other expenses that need your immediate attention.
It is true that you have decades before you reach retirement age, but if the goal is to retire happily, you can use these tips to get started on planning and ensure you get the rest, relaxation and calm you are expecting once you officially retire.