Did you know that nearly 25% of 65-year-olds will live to 90 years today? These statistics from Social Security Administrations mean that you must plan for your retirement if you fancy your chances of living comfortable life afterward. In doing so, you will save enough money, be able to pay for your health care, and maintain a sustainable income stream in your retirement. However, retirement planning comes with challenges like complex family situations and inflation. That’s why you need the following tips from retirement advisors.
- Understand Your Options
Different retirement options include defined contribution plans, cash-balance plans, traditional pensions, and guaranteed income annuities. The option you choose will determine how much you will save, the tax payable, the flexibility, and the penalties should you decide to withdraw. It’d be best to go for options like nonqualified annuity which the principal and premium are tax-free. Such an option doesn’t need you to have earned income, and IRS doesn’t limit the amount you can contribute annually.
- Start In Your 20’s
It’s advisable to start saving for your retirement as early as possible. Despite seeming far, settling on a retirement plan and starting to save early will enable you to save enough money to outlive your retirement years. Since you might still be paying student loans or starting your carrier while learning money management in your 20s, it’d be best to save 10% or 15% of your income. Early saving also comes with compounding returns which increases your savings.
- Pay Yourself First
You will always find a spending reason once you receive your money hence the need to pay yourself first through automation. In automating your savings, you won’t be responsible for the deductions, making it easy to overcome present bias. It will also make it easy to attain your retirement saving goals since the deductions are regularly provided you are paid through the bank account.
- Control Your Spending
Despite being a no-brainer, spending habits are one of the challenges you will face when contributing to your retirement saving plan. Therefore, it’d be best to reduce unnecessary spending and direct it to your saving account. Reducing expenditure to 80% of your monthly income is the best way to control your spending. Doing so allows you to save 20%, which can be a good amount with time.
- Be Patient
You might want to withdraw your retirement savings before a certain age. However, many financial advisors don’t recommend this. Early withdrawals (before 59 ½ years) from saving plans like nonqualified annuity attracts a 10% penalty fee on earnings and interest. It’d be best to wait until you reach 72 years before you start withdrawing. This will give you better returns, making you comfortable for life.
Living beyond your means and longevity can give you retirement anxiety, but it doesn’t have to be so. You can overcome the worries with a sound retirement plan which calls for advice from reputable financial advisors. This article details the retirement tips that should get you started with the plan. It’d be best to use the information and start saving today.