Planning for retirement is something we all do at some point in our lives (or should, anyway), since we’ll need some way to sustain our lifestyle when we can no longer work and earn. Perhaps you already have a small savings fund which might be able to cover the bare basics, but wouldn’t you rather be comfortable than just “making do”? It seems unrealistic to aim for a million dollars in your retirement fund, but in reality, that’s the very least you will need. If possible, set your goal even higher!
How Can You Achieve the Million-Dollar Retirement Dream?
For a million-dollar retirement nest egg, check out these 10 effective financial planning steps and follow them as closely as possible:
Decide on an Objective
The first question is, how much will you need in order to meet expenses, both for daily life and the dreaded medical and healthcare bills that pile up with age? The rate of inflation today is scary, and it isn’t likely to get any better by the time you hang up your boots.
If you are ever going to achieve your goal, you need a clear picture of what it is. Analyze your current budget as well as potential long-term care needs, factor in any extra expenses for leisure, travel or hobbies, and come up with a number that works for you.
Don’t Put Off Saving
It’s tempting to think of savings as something you can put on your to-do list, after you’ve bought that new smartphone or redecorated your home. However, the sooner you start, the better. If you put it off for later, you’ll have to set aside more money every month to reach your eventual goal!
Check if your employer offers a 401(k) plan and enroll with matching contributions, so you get what’s essentially free money for retirement. The automatic contribution before you get your paycheck keeps temptation at bay and reduces your tax burden too.
Maximize Your Opportunities
Many retirement plans have limits on how much you can contribute annually, like 401(k)s and IRAs, but don’t let the thought of paying taxes put you off from saving as much as possible. If you’re over the age of 50, put additional money into them with catch-up contributions too.
Once you’ve maxed out your tax-deferred savings plans, put excess funds into taxable investments. Many investments made with post-tax funds will not incur additional taxes when you claim the proceeds later.
Create an Emergency Fund
No matter how well you plan your finances, there’s no telling what curveballs life might throw at you. It could be an injury or illness that leaves you unable to work for a while, a crash in the financial market that affects your investments, or any manner of other setbacks.
Mentally prepare yourself and accept the possibility that it might happen. Then, set aside some money in liquid, easy-to-access assets that you can rely on in an emergency. The last step? Keep away from this fund except when you really need it!
Minimize Your Spending
When you’re trying to save for future prosperity, every extra expense you make in the present takes you further from your goal. It isn’t just the costs of eating out or shopping that you need to reduce, but even your basic spending. For instance, buying a car or house that’s out of your budget won’t help.
The most important thing to remember about living within your means is that credit is your enemy. Your mortgage, credit card bills and loans will all have to be paid back, usually with heavy interest.
Asset allocation is the key to receiving high gains from investments, to offset the cost of inflation. While there is a risk, aggressive investments (like equity funds) made while you’re still young pay off much better in the long run than their fixed-returns counterparts.
It’s best to make informed decisions by hiring a reliable financial advisor to help you formulate an asset allocation strategy, especially if you’re a beginner in the volatile world of investment markets.
Save on an Upward Curve
As you advance in your professional life, you will start earning more. Whether it’s a promotion within the same company or a new job, every change typically brings with it a larger paycheck. This needs to reflect in your savings too, so you can reach your retirement goal faster.
It doesn’t have to be you alone, either. If you’re married and your spouse is earning too, imagine how much quicker the two of you could quit the grind and retire in ease if you both save aggressively!
Keep Track of Investments
– If you want to understand where you’re making money and where you’re losing it (or not making enough), track your investment portfolio and rebalance it regularly. This helps you stay on track, especially when you keep the end goal in mind.
You don’t need to do this very often, but it’s a good idea to analyze your financial portfolio at least once a year and make changes to asset allocation as per each investment’s performance.
Harness the Benefits of Insurance
Life insurance can do more than just providing your family with financial security in case of your death. Permanent or whole life insurance policies accumulate a cash value that you can access during your lifetime too, which is why they play such a crucial role in retirement planning.
With permanent life insurance, the policy builds a cash value that’s tax-deferred and against which you can take a loan or make withdrawals when you need extra funds. It also allows you to pass on the benefits to your dependents without burdening them with extra income tax upon your death.
Remember That It Takes Time
There’s no surefire formula to making a million (or millions) in a short period of time, especially if you begin late. If you’re expecting your savings to skyrocket overnight, you will be disappointed. The key to effective long-term success is patience and discipline; keep that in mind when the process seems slow.
Your money will grow on a compounded basis, though, so over the years you will definitely see the results. Getting old may sound scary but getting old with no money definitely sounds scarier. Therefore it’s essential that you plan out your retirement income with the utmost care, which is where a financial advisor comes into the picture. A financial advisor will have the necessary experience and expertise to help you embrace your old age comfortably. Do consider investing your hard earned savings with the advice of a financial advisor who will ensure you enter your golden years with wealth.