Planning your retirement is a process that will evolve, especially if you wish your retirement to be worry-free, comfortable, and enjoyable. The critical element here is building the financial cushion that will make that all possible, and planning how to do precisely that.
You begin by defining your retirement goals and setting a timeline for meeting them. You also need to take a look at the available retirement accounts that can support you in coming up with the money to fund your retirement years. Fortunately, if you have questions, you can look at existing plans online such as the at&t retirement plan.
Apart from saving money, you need to look into investment opportunities to make that money grow. Also, take into account taxes and how you can minimize these as you save for your future.
Looking to build a sturdy retirement plan? Consider these five things:
- Use your time wisely. How old you are now and how old you expect to retire make up the initial foundation of a formidable retirement plan. The level of risk your portfolio can take is directly proportional to the number of years you have until your retirement. Hence, if you are quite young and have about 30 or 40 years to go before retiring, you can put your assets in more volatile investments such as stocks.
- Define your spending habits. Make sure you set realistic expectations about your spending expenditure once retired. This will help you determine your necessary portfolio size. Most people have a notion that they will be spending far less (about only 70-80%) of what they previously did when they were employed. This, however, is usually wrong. Consider if your mortgage has been fully paid, unforeseen medical bills, and other emergencies. To ensure that you are fully covered, think of the ratio as being closer to 100%.
- Don’t forget your Taxes. Once you’ve gotten hold of your expected spending needs, you must calculate for the after-tax rate of your investment returns. This is to determine whether your portfolio will be able to yield your intended income. Investment returns are usually taxed, as determined by the kind of retirement account that you have. Thus, you need to calculate your actual rate of return after taxes have been applied. Learning the state of your taxes once you start to withdraw your funds is a crucial step in planning your retirement.
- Assess your Investment’s Tolerance to Risk. Whether you are in charge of your own financial decisions or you have someone calling the shots for you, ensure allocation in your portfolio between your risk tolerance and your investment goals. Determine just how much you are willing to risk for you to meet your financial goals. Think about setting aside some of your assets to go into risk-free investments such as treasury bonds.
- Have an Estate Plan. To round off a complete and reliable retirement plan, make sure that you are on top of estate planning as well. Life insurance coverage is an aspect of this plan, and a well-defined plan will ensure that your assets are appropriately distributed following your wishes and that in the case of your passing, your loved ones will be in good financial standing.
Retirement planning can be a challenging business wherein the trickiest part is finding that sweet spot between your return expectations and your required standard of living.