Preparing for retirement isn’t optional; it’s something you must do to ensure your current standard of living when you are no longer working. And, of course, you need to start as early as possible.
When thinking about your retirement, it’s always a good idea to work with a retirement income planner. If you don’t have sufficient knowledge and skills to create a viable plan, then a retirement planner like Harlow Wealth is indispensable. However, even if you’re fairly good at organizing your own finances, an experienced retirement income planner will help you fine-tune your strategy.
Let’s take a closer look at some of the questions you should be considering when planning your retirement.
- How much should you save for retirement?
A USA Today article on retirement savings offers the following example to drive home the point that the earlier you save, the easier it will be to accumulate the money you need during retirement:
“A 25-year-old who has $10,000 saved, earns $50,000 a year and wants to replace a little less than that level of income will need about $2,833 a month in retirement. Saving 12% of his income — a number that adds up to around $500 a month, and can include employer matching dollars — will allow him to retire by age 68.”
If the same person were to start saving only ten years later and still planned to retire by age 68, they would need to start with $30,000 in savings. Earning $70,000 a year, they would need to save 17% of their income, which would come to about a $1,000 a month.
- What type of retirement savings account should you use?
When it comes to a retirement savings account, there are 7 basic types to consider: a 401(k) or 403(b) offered by your employer; a Solo 401(k); a SEP IRA; a Simple IRA; an IRA, a Roth IRA; and a Health savings account. The best way to make a decision is to research the pros and cons of each one and then discuss the reasons with your financial advisor.
- What type of investments should you consider for your retirement?
Although the greater the risk, the higher the return, this approach is a little bit of a gamble if you’re planning to build a comfortable retirement nest egg. When considering types of investments, financial advisors usually lean toward a more conservative approach, preferring safer investments with less risk.
Here are 3 examples of investment to consider when planning your retirement.
- Retirement income funds: A retirement income fund is actively managed by fund company professionals to provide a monthly income. Fund companies like Vanguard, Fidelity, Schwab, and John Hancock each have their own of versions. With a steady payout of about 4 percent over your retirement, you won’t have to worry about things like outliving your money or asset allocation strategies.
- Bonds: A bond is classified as a debt investment. Investors loan money to a corporation, government, or other legal entity. The funds are borrowed for a clearly defined period. The interest rate may be either variable or fixed. Since bonds are viewed as safer than stock investments because short and medium-dated bonds have low volatility, this offers a clear advantage when considering the best securities.
- Immediate Annuities:An immediate annuity is an annuity contract that you buy for a single lump-sum amount. In exchange, you will get a guaranteed income. Moreover, it’s one that will start immediately. This is a good plan if you think you might outlive your savings. One downside to this type of investment is that each purchase is final; so, you can’t receive a large sum if you need to have a financial emergency.
Other investments often considered suitable as retirement investments are rental real estate, income-producing closed-end funds, variable annuity (with a lifetime income rider), and dividend income funds.
- Why is it important to diversify your retirement portfolio?
While increasing the shares you have in a blue chip investment over time has the potential to create massive wealth, it’s also a risk. Even long-standing established and reputable businesses can fail.Consequently, diversifying your portfolio will lower your risk. If one asset unexpectedly collapses, you still have dividend income coming in from other assets.
In closing, there are three things to remember when planning your retirement—start early, do your due diligence on investment services, and be open to suggestions from financial advisors who specialize in retirement planning.