Things You Can Do to Improve Your Retirement Plan
Retirement planning is a never-ending process. It may begin as soon as you get your first paycheck but will last until the moment you retire. A typical retirement process will require forming goals, preparing budgets, keeping track of expenses, ensuring maximum savings, investing wisely, buying insurance, and so on. Each step is critical for people to enjoy these blissful golden years that one spends the whole life planning for. While fulfillment of the process does guarantee a safe retirement, it can be further improved to accelerate retirement plan benefits.
Here are some things you can do to improve your retirement plan:
Know the time horizon and make necessary amendments
You may think that consistently achieving your savings goals for the month is sufficient for a well-funded retirement. But this strategy could backfire in some cases. Your current age and the expected age of retirement are two factors that determine your retirement plan and related factors such as savings rate, portfolio investments, asset choice, insurance plans, etc.
For instance, you begin your retirement planning at the age of 40 and set your savings goal as $10,000 per month, with the aim of retiring at the age of 65 or later. However, as the years pass, due to a number of personal and professional reasons, you may consider retiring at 60. Here, the retirement plan will suffer a blow if you do not alter your savings rate as per your new retirement age. Ideally, with a reduction in the working period, your saving rate should have correspondingly increased. Failure to do so can result in insufficient savings.
Moreover, given the shortened time horizon, the overall investment approach will also need to be altered. As an investor, if you have considerably fewer years at hand, your strategy should be to stabilize your income. Hence, your investments should consist more of fixed income assets, bonds, and less of equity-based funds. Additionally, the maturity of the funds should be simultaneously changed. For example, for a person who is 30 years old and wants to retire at the age of 60, investing in funds that mature in 2050 or before makes more sense. Funds that alter with the time are known as target-date funds. You can consider adding these to your investment portfolio.
Focus on your spending habits
Even though your current monetary status persuades you to spend, it may not be the wisest thing to do if you aim to improve your retirement plan. Spending and budgeting are two founding pillars of a financial plan, and at no time should these be compromised, irrespective of your earning status. You must cautiously watch how much you spend and on what areas. Your overall expenditure should ideally be lower than your savings. Thus, a budget that limits spending will do wonders to bolster your targets. You should list down all your expenses, eliminate or reduce unnecessary costs, increase your rate of savings, modify the saving plan as per the increase in your income, and ensure that you meet your savings goal every month.
On the other hand, it is critical to also check if you are under spending in some areas such as insurance covers, healthcare needs, etc. You may need 70 to 90 percent of your current income to maintain your standard of living after retirement. Hence, all efforts should be directed to reach this figure.
Re-assess all your retirement plan options
Limiting yourself to savings alone might not be the ideal way to plan retirement. While it is essential to save more, it is also critical to choose the right medium of saving. The correct mode would be the one which provides security, helps your money grow, and offers tax-advantages. Hence, to ensure your retirement is appropriately planned, it is vital to make the most of the retirement saving options such as an Individual Retirement Account (IRA), a Health Savings Account (HSA), a 401(K) account, or a 403(b) plan, etc. Most employers make contributions to these accounts anyhow, so it would be a smart move to match their contributions and take full advantage of the situation. Investing in employer-sponsored retirement plans also reduces your taxable income, while simultaneously allowing your savings to grow tax-deferred until they are withdrawn. It is essential to max out all your options and find ways to save tax. The contribution limit for IRA catch-up contributions for 2019-2020 is $6000 + $1000 for investors aged 50 or more. However, for a 401(K) account, the upper cap is $19,500 + $6,500 for people aged 50 years and above. Every account has its unique set of rules and benefits. You must find one that works the best for you.
Stay updated on your estate plan
It might seem like there is time ahead, and that estate planning can wait a little longer. But the sooner you get to it, the better can be your retirement plan. Estate planning covers all financial aspects including, wills, trusts, assets, portfolios, life insurance policies, healthcare covers, etc. Reviewing these plans from time-to-time to ensure they meet your present goals and needs is essential to have a happy after-work life. With age, you might want to shift your investments to a more conservative form or apply for insurance which specifically provides for a particular medical condition. Matching your estate plan with your current requirements will help create a substantial retirement nest. Moreover, it is also important to decide the course through which the estate has to be passed on to the beneficiaries to minimize taxes.
Be wise with Social Security benefits
If you believe the lack of funds during retirement will be compensated by the money from Social Security, you may need to reconsider your plans. In January 2020, the average annual Social Security benefit was only $1,503 per month, which is ideally insufficient given the lifestyle costs post-retirement. As per research, there is no county in the U.S. where the cost of living is at par with the average Social Security. Depending entirely on Social Security may leave you high and dry.
Another important point to note is that delaying the withdrawal can help you capitalize on the benefit. The withdrawals can be initiated from the age of 62 and can be delayed as further as the age of 70 to maximize the payout. However, if you claim before your retirement age (66 or 67 depending on your birth year), your claim payment is reduced by a fixed percentage.
Improve your financial health
There is a direct relationship between financial health and retirement planning. Both function to mutually benefit the other. The stronger your financial well-being, the more comfortable will be your retirement. One must adopt a holistic approach to improving financial health such as raise income levels, reduce expenses, maximize investments, automate savings, increase the savings rate, consolidate debts, eliminate extra fees, and most importantly, reduce your overall tax liability. It is essential to be aware of economic and tax changes and stay acquainted with fiscal news to improvise your plans from time to time.
To sum it up
As per records, saving for retirement is a top priority for 57% of the American working force, and it must be a primary concern in your life too. Make sure to incorporate these points in your retirement plans. Following these simple steps under the guidance of can help you build a satisfying retirement.