Retirement Planning 101
Everything you needed to know about retirement planning but was afraid to ask!
You just got out of school, and you’re ready to join the workforce. You have a multitude of bills that need paying – living expenses, student loans, car payments, and insurance. You still have decades to go before worrying about retirement. How can you afford to start saving now?
That is the thought process of many young people when they start their career. With so many bills, it can be overwhelming, and the last thing on your mind is saving for the future. You have the time, so why start?
But the reality is you should be planning for your retirement as soon as you get your first job. Even a small amount such as $10 can start you on the ever-winding path of financial security.
The Four-Step Process to Retirement Planning
Retirement is not a simple process – it’s a multi-step process that takes a good strategy, one that will last your entire lifespan. You must realize the risks and challenges involved and know that the journey will change the older you get.
But how do you even begin to plan for the future? What steps do you need to take? Fortunately, we have the answers.
When it comes to planning, there are four steps involved. Meet all these steps, and you’re sure to have a golden future.
Step 1: Know Your Goals
As with any financial planning, you need to know what your ultimate goals are and how you will meet those goals. You need to prioritize these goals, and you should meet each one before proceeding to the next target.
Your first main goal is living expenses – will you have enough money in the bank for food, shelter, clothing, and any health care expenses? This should be your top goal. Remember, you will need enough to live on for the rest of your life which could be another 20 or 30 years.
Once you have your living expenses take care of, you should also consider emergency situations. Situations can be anything from an unexpected health care expense to a pricy home repair.
Now comes the fun stuff. Interested in traveling the world? Or maybe you want to see a new Broadway show every year? Whatever goal you have in mind, you need to know how much it’s going to cost so you can start saving appropriately.
And finally, your last goal is your legacy. What will you leave behind to your loved ones? Are you planning on creating a trust for your children? Or maybe donate it all to charity? Your legacy is the last goal you should consider when planning for your retirement.
Step 2: Beware the Risks
Like with any investment, retirement plans face several risks. The volatility of the market could wipe your investment away in a single blow. Your declining health could severely damage any savings you have.
Then you have the risk of your mortality. Living too long means outliving your savings. However, unexpectedly dying could leave your loved ones with more wealth than anticipated, leading to more taxes.
And then there are the events that we don’t expect. A sudden stroke that will take you years to recover. A natural disaster destroys your home. A family member needs constant care after an accident. Do you think you are prepared?
Step 3: Align Your Goals
Now that you have an idea of what your goals are and what risks you’ll be facing, now it’s time to start saving. But what do you use? We all know about 401(k)s, Social Security, stocks, and bonds. But what resource do you use for what goal?
Before you can determine what to use, know that your retirement investments can be broken up into three categories:
- First, you have income that is guaranteed to come to you, income that you know have been put aside for your
retirementsuch as pensions, annuities, IRAs, and Social Security.
- Your next category is liquid assets. These are investment accounts that you own and control.
- And finally, you have other resources. Items such as an insurance policy, your property, any income from your job.
Once you figured out your resources, now it’s time to match your money to your goals. For example, for your basic living expenses, chances are you will be using the income that you socked away from retirement. Meanwhile, you’re going to use your insurance policy for any legacy you’ll leave behind for your loved ones.
Step 4: Create Your Plan
Now that you know all the specifics involved, it’s time to create the plan that will meet all your retirement goals. And this is where a retirement planner comes into play. This expert will advise you on what you should be doing to help you realize your goals, steer you in the right direction for your money, and warn you about the risks involved in your investments.
If you’re ready to start planning for your future, we’re ready to assist you. Contact a retirement planning professional today and take a step into financial security.