The word retirement has a different meaning for different people, but the purpose of retirement has always remained the same. Retirement is leaving your job and having the financial freedom to travel, start a new hobby, or simply just sleep in. After working hard and planning for most of your life, retirement gives you the flexibility to not worry about money and focus on the most precious item, which is time. The importance of money gets replaced by the quality of time you spend for the remaining time of your life. However, to really replace money with quality of time, there needs to be enough secure money prepared for this next phase of your life.
To most, retirement is considered when you are Social Security eligible and their only source of retirement fund is Social Security. This of course is not the only option for a retirement plan. In fact, this should be considered a last option as a retirement plan. With great discipline and planning, there is no minimum age for retirement. If you have done a great job of saving, investing, and watching your taxes, then you can start retirement life as early as your 40’s. However, retiring this early is a rare situation. The majority of people start thinking about retirement later in life. It is never too late to start planning, as long as you start and have a well thought out plan.
Planning
The most important part of retirement is having a concrete plan on how you plan to reach your retirement goals. Unless you win the lottery, each stage of your life has a different strategy in your attempt to build your nest egg and retire comfortably. Below are what some would consider responsible planning at different age levels in your life.
20’s: Start early by opening up an Individual Retirement Account (IRA) or 401k account. Ask your employer if there are any retirement benefits that you can take advantage of and become very familiar with your retirement benefits at work.
30’s: Consider diversifying your portfolio accounts to reduce risk. As you start to accumulate your retirement, this is an important stage to initiate a relationship with an investment advisor in order to strengthen your investment knowledge.
40’s: Your income may increase at this stage but so will other responsibilities. You might have a family, mortgage payment, college tuition for your children to consider. It is vital to not get tempted to dip into your retirement accounts to pay off some of those responsibilities. Stay focused on contributions to your retirement fund.
50’s: At this stage the IRS will allow you to make catch up contributions. Increase your retirement fund at a faster rate by maxing out on your contribution amount since the IRS will allow you.
60’s: Start looking into conservative investments and start preparing to retire. Just before you retire, you will need to have another plan on how you will spend your money. Rather than frivolously spending your hard-saved funds, consider talking to a financial planner so you have a strong strategy on how to spend. The worst-case situation would be to run out of money in your retirement.
70’s: Depending if you have been paying into Social Security, this would be an ideal time to start pulling from your Social Security. Since you planned to wait this long for Social Security, you should be able to receive the highest amount. Contact the Social Security office for your eligibility requirements.
Taxes & Fees
Taxes and fees can have a negative impact on your retirement savings. It is vital to pay attention to how these two items impact your saved funds. The term Roth means paying the taxes on your income before depositing your money into the retirement account. This will allow your money to grow tax free since you paid taxes upfront. In addition, look at the costs and fees for you to have and maintain a retirement account. You do not want your hard-earned money being eaten away by unnecessary costs. The following are important questions to consider as you plan your retirement.
- Do my investment accounts have high maintenance fees or other expenses?
- Which tax bracket will I be at when I’m close to retirement?
- Will my money be taxed while in retirement or before?
- What is the early withdrawal or late withdrawal penalties?
