You cannot stop your retirement from happening so it is better to start planning for the days when your income will be less than now. Retirement planning is a continuous process that requires regularly taking stock of your incomes, expenses, liabilities, savings and future plans. The following five steps will help you secure a safe future where you do not have to worry about your finances.
1. Assess Your Current and Future Financial Situations
You should assess not only your current financial situation but also the future one. What are your assets, incomes, expenses and liabilities and what will be the status of those financial factors when you retire? Your income will go down after retirement but most likely you would have cleared most of your debts. You will have different types of valuable assets. Real estate assets can be put on rent or sold to monetize them. However, once you sell such an asset, that value and security will disappear. After that, you have to rely on your incomes and remaining savings.
Take into account what will be your incomes and expenses in your old age. You should be able to take care of your basic and other expenses. You have to keep some savings for medical expenses that might increase in your old age. Start saving according to how much money you will need during those years.
2. Write down Your Retirement Plan and Calculate Taxes
Write down this plan on the paper. You can use an online retirement calculator to plan better. Write down all the details, results and reports it generates. Provide accurate data to receive accurate results. What should you write in your retirement plan document? Write all financial details including your current and post-retirement incomes and expenses. Calculate how much money you will need for regular, occasional and contingency expenses.
Taxes will always take away a part of your income. When calculating your incomes, expenses and liabilities, you should deduct taxes to see how much real usable money you will be left with. It can be a complex calculation so you should take help of a financial professional, tax planner, or online tax calculator. You will be paying different types of taxes including capital gains tax. In addition to your incomes, you also have to pay taxes on your property and other assets that generate income. Some assets may seem appreciating in value but when you monetize those assets, you have to pay taxes on the sales proceeds. Calculate all such taxes when planning your retirement fund.
3. Include Your Spouse’s Retirement Plan but Prepare Your Individual One As Well
If both of you are in service with assured pension, you will have a fixed income source in later years. On the other hand, one or both of you may not be in a job where a pension is assured. One of you may not be working now. There are all such variables that you should take into account when calculating how much money you will need for both of you. Prepare two different retirement plans – one that covers the financial situations of both spouses, and one that covers only your financial records.
4. Explore Different Investment Funds
Never depend solely on one type of investment. Your retirement plan must include different investment products, such as pension, shares and stocks, property, precious metals, pure retirement funds, and others. Check dedicated retirement plans offered by both governments and private financial companies. Start investing in all such products but give preference to assured investment plans.
5. Consider Inflation
When assessing your current and future financial situations, you should always keep in mind the inflation. The amount of goods you can purchase today for $100 will be less in the future. You should also consider the fact that as the years pass by, the same amount can buy fewer and fewer of those items in the later years. Most people now live longer post retirement due to the comfortable living conditions and advances in the medical industry. You should have a retirement fund that will keep working for you for a long time.
If your present income does not allow investing properly in a retirement fund, you should consider working a few more years after the retirement. It is also beneficial as you do not have to worry about being alone and away from the community. You will be able to keep yourself busy with some productive works and make some money as well. You can work as long as your health allows it. You should keep some money for a small business. Sometimes you do not need money to earn an income. Your experience in your industry can help you earn an income working as a consultant or in other ways.
