Are You Among The Americans Planning for Retirement?

Compound interest
According to The Principal Financial Well-Being Index, retirement planning is on the rise in America.

The survey points out that only 28% of workers aren’t planning for retirement, which is a drop from 32% in the previous quarter. This news indicates that more American workers are making efforts to plan for retirement.

Are you one of them?

The Sooner You Start, The Better Off You’ll Be

With investing and retirement planning, the sooner you start, the better off you’ll be. There are two main reasons you should consider beginning your retirement planning as soon as possible:

1. Compound interest will do the heavy lifting.
One of the biggest reasons to start early is compound interest. As your account balance grows, you earn interest on your interest. With investments, like equities, this principle also holds true. The more shares you have, the higher your balance — and you can buy more shares with the money you earn, using not only your capital but your earnings to make more money.

2. You’ll have more time to recover from dips.
When you start earlier, you have more time to recover from market dips. That’s because the longer you’re in the stock market, the higher the chance that your shares are worth more. In other words, the longer you have until retirement, the less likely you in the red if you buy into an index fund that tracks stocks covering a wide swath of the economy.

Starting your retirement planning early (and getting an idea of how much you need to set aside each month) can help you build up the nest egg more effectively. The sooner you start, the longer your money can work for you.

Indeed, starting out by putting a smaller amount into your retirement account when you’re in your 20s can be more effective than trying to play catch-up with a large amount when you’re in your 50s.

So even if you don’t have much right now, just start small and begin building your retirement portfolio. Then, as your income increases, you can boost your contributions.

How Can You Start Retirement Planning?

The best place to start retirement planning is online. There are a number of retirement calculators that can help you figure out how much you’ll need in retirement, as well as help you estimate how much to set aside each month to reach your goal. (One such option is Personal Capital, a free option we’ve talked about before). If you’re still uncertain, there are plenty of reputable financial planners who can help you map out your future as well.

If you want to enjoy a successful retirement, it’s important that you make it a priority now. Check into what tax-advantaged accounts you qualify for, as well as the limits with contributions. You can open a 401(K) at your work and an IRA on your own. When possible, make it a point to max out your tax-advantaged accounts so that your money grows more efficiently.

How to Be More Confident That The Plan Will Work?

Retired couple on cruise
The financial state of the Social Security Administration, as well as the uncertainty of the current U.S. and world economies, might be making you nervous about your upcoming retirement. Although some elements of retirement will always be a risk — since you can’t know the future state of economies, your lifespan, and other factors that can affect your finances — careful and thorough planning will carry you a long way in security for the future.

As you approach retirement, these steps will help you create a plan that’ll work for you:
1. Start now, even if you think it’s too late.
We mentioned how starting as early as possible will give you a leg up, but even if you are older, you can still get a benefit if you start now, instead of later. You can’t go back in time to start saving in your 20s, but you’ll still be better off if you start to plan right away. Hopefully, you already have a stable and profitable 401k or other investments to draw from. If you don’t, start as soon as possible. Any day you delay is another opportunity missed.

2. Work out the details of your retirement lifestyle.
This includes housing, medical needs, plans for travel, income sources, and other factors that’ll determine your budget. The kind of life you live now may be very different than the one you’ll live after retirement. Retirement living is typically much simpler — by necessity and also desire. However, this doesn’t necessarily mean you’ll need less income.

Although you may be spending less (or nothing) on housing and bills, traveling more and preparing fewer home-cooked meals will cause your discretionary spending to increase. You also need to consider your present health and how it may change in the coming years. While Medicare will most likely provide for many of your medical expenses, you may need supplemental sources. Evaluate your current spending patterns as a clue for your future spending, and create a tentative budget along with your known expenses. If possible, consult a 3rd party for advice on whether your plan is realistic and sound.

3. Pay off as much debt as possible.
This is one of the simplest, but most crucial steps when retirement planning. Paying off debt when you have higher income frees up more of your retirement income for necessary living expenses. If some debt can’t be avoided, such as a mortgage, then at least pay it down as much as possible and look into refinancing to get a lower interest rate for your remaining payment plan.

4. Determine your best Social Security benefits enrollment age and ensure enrollment in Medicare programs.
This topic could be exhaustive, but in brief: the later you begin withdrawing from Social Security, the better. If possible, wait for your full retirement age, and even better, until you turn 70. The Social Security Administration’s website can help you calculate at which age you’ll receive the most benefits.

Medicare, the medical plan for Social Security, is very complex and contains parts A, B, C, and D. Some parts will include automatic enrollment, while others require you to apply a few months before you begin withdrawing Social Security. Talk with a Medicare expert and follow the guidelines on when and what to enroll in.

5. Update investments to avoid major losses close to retirement.
The younger you are when you start your investment plans, the more risk you can afford in hopes of higher returns. The closer you get to retirement, though, the more you’ll want to scale back on riskier investments and stick with those that’ll provide a stable and predictable income.

But, just because you’re retiring doesn’t mean you can keep risky investments such as stocks altogether. That’s because even the safety of bonds is losing purchasing power due to inflation. That’s why your asset allocation mix is one of the most important investment decisions you’ll make. Take time to look at your situation and figure out what you’re comfortable with, based on your need, willingness, and ability to take risks. This is a very individual decision that can be easy for some to make but almost impossible for others. For those having difficulties coming up with a right number, then a financial planner can always help.

Having the confidence to retire is hard, but these steps can help you a bit. What else would you add to this list?

Editor’s Note: I’ve begun tracking my assets through Personal Capital. I’m only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it’s much easier to figure out when I need to rebalance or where I stand on the path to financial independence.

They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it’s free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.


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