Retirement planning isn’t something that we think about when we are in our 20’s and 30’s. Most people tend to focus on their immediate needs, like paying bills and everyday expenses. However, the reality is that—if you want a comfortable lifestyle in your golden years—establishing a plan for your retirement goals now is essential.
Take it from advisors who do financial planning in the Bay Area regularly: The time to consider pension plans, 401(k)s, Social Security benefits, and other forms of retirement income is not five minutes before you need them. So, setting long-term financial goals for your retirement today can help ensure that you have the funds available when the time comes to leave the workforce.
This article discusses these topics:
- Why worry about my retirement now?
- When do you want to retire?
- What are your personal retirement goals?
- Plan ahead to better ensure the outcome
Why Worry About My Retirement Now?
The younger you are, the less prone you may be to pondering your future life as a senior. Nevertheless, the sooner you begin preparing for those days financially, the more you can enjoy the benefits of compound interest. In other words, if you start putting even a little money away from each paycheck, by the time you retire, you could have a surprisingly nice-sized nest egg to live off of.
For the same reason, starting your retirement planning and saving in your twenties, rather than waiting until your thirties, is generally far more advantageous. We’re not saying that it’s too late if you’ve already had your 30th birthday (at all); only that if you haven’t, you could stand to gain a great deal more via interest over time.
Considering how much money you spend on monthly expenses, now is a good place to start. With that done, it can be easier to evaluate how much money you might comfortably save each month. This is a fundamental step toward creating a realistic budget to save more effectively.
It’s impossible for mortals to predict the future, but the more closely you can estimate a reasonable monthly retirement income based on this information, the better off you are likely to be. Generally speaking, it’s better to overestimate than to risk falling short when your wage-earning years are behind you.
When Do You Want to Retire?
Retirement planning should be considered a complex and multifaceted process. After all, it requires careful consideration of financial, medical, legal, and personal factors. This makes determining your ideal retirement age essential for creating a plan to help you sustain your desired lifestyle through your golden years.
That plan should be as comprehensive as possible. In other words, it should factor in every possible facet of both your personal and professional financial lives. You might say it compares, medically, to using an MRI machine instead of settling for an x-ray: A comprehensive approach to your finances facilitates a 360-degree view.
Using that 3D perspective makes it possible to apply, for example, tax deductions for improvements to commercial real estate (held in your retirement portfolio) to your personal income taxes that year. The more areas of your life that are included in your financial planning, the greater your potential savings (and potentially, returns) become.
Your likeliest retirement age is a major part of truly comprehensive retirement planning. Once you have those coordinates on the timeline, you can begin working toward them, strategizing your taxes, saving, and investing toward your most effective outcome. You can then make better-informed decisions about how much to save, how much risk you are prepared to accept in your investments, and so on.
What Are Your Personal Retirement Goals?
Figuring out your personal retirement goals is another critical step in the process. This allows you to create a more specific plan on how to reach them. So, you need to understand how much money you’ll need before retiring, your monthly budget as a retiree, and how you’ll utilize your savings and assets.
Assessing potential sources of income such as pensions, retirement accounts, and Social Security can also be helpful. Learning as much as you can about these in order to incorporate them into your plan is best done long before you’re ready to clock out of the workforce for good.
Since 2022 was a year of inflation and bear markets and a 2023 recession looks likely, even the nest eggs of the affluent could be reduced if they don’t plan ahead financially. That’s why identifying your retirement goals and then getting proactive about them as soon as possible is so important today.
Knowing your personal retirement goals puts you one step closer to financial freedom because it allows you to determine the various steps necessary to address them. It may also help provide confidence by helping you to better preserve a more dependable future retirement income.
Plan Ahead To Better Ensure The Outcome
What if you experience a major lifestyle shift in retirement, such as downsizing and selling your home to lower your cost of living—or moving to a new location to be closer to family? This is why it pays to plan carefully, working to ensure that everything goes as smoothly as possible.
Retirement goals are vital to this aspect of wealth management, so take some time to consider what you’ll need in retirement. It may go a long way toward helping ensure a brighter future down the road. Again, the earlier you start setting goals and planning, the more capacity you can facilitate for unexpected expenses should unplanned or unfortunate circumstances occur.
Getting proactive doesn’t have to be difficult or painful, either. Setting specific goals like saving a certain amount monthly and/or paying off debt can make it easier to gain ground toward your objectives. There are many potential benefits for your future, including a possible increased sense of security about your retirement.
Regardless of what stage you are in your retirement planning, Humanity, an independent financial planner, can help. We specialize in financial planning for millennials in the Bay Area. Contact us to learn more.