Retirement planning often takes a back seat, overshadowed by the immediate demands of wealth accumulation. After all, building your wealth is already a significant undertaking. Why should you devote precious time and effort to planning for retirement as well?
Retirement planning is not just a wise decision; it's a vital element of financial wellness that helps your hard work contribute to a stable retirement in the future. From navigating retirement accounts to identifying sources of income, choosing investment strategies, estimating your future needs, and preparing for unexpected life events—there’s a lot to consider. Let us guide you through the complexities of retirement planning, simplifying the process and assisting you in building a secure future!
The Importance of Early Planning
An essential first step in navigating retirement is to begin early. Why? The answer is straightforward: the more time you invest in planning your future now, the greater the rewards you'll reap later. Just like any investment, a longer time horizon typically offers a higher potential for growth. By starting early, you take advantage of compounding interest, allowing your investments to grow at an accelerated rate over time.
Compounding not only results in increased wealth but also offers numerous additional benefits. By planning for retirement sooner in life, you set the foundation for financial security in your later years of life when you need it the most. It also provides flexibility in lifestyle choices and adaptability in the face of unexpected events. Overall, planning ahead allows you to secure the resources to enjoy a comfortable and fulfilling retirement.
Understanding Retirement Accounts
The next step in preparing for retirement is understanding the basics of retirement accounts. Accounts individuals use to save for retirement include 401(k)s, Traditional IRAs, and Roth IRAs. There are also 403(b)s, 457 plans, SEP-IRAs, and SIMPLE IRAs.
Each type of retirement account has its own specific rules—contribution limits, eligibility requirements, taxes, and penalties will vary. The retirement account(s) you choose will depend on several factors, including your financial objectives, income level, and employment situation.
HORAN Wealth Retirement Plan Consultant and Relationship Manager, Rachele Wolf, CPFA™, shares, “Employees of for-profit companies typically use 401(k) accounts, while nonprofits opt for 403(b)s. Ultimately, it depends on your specific needs and structure of your employer.” Consulting a financial advisor can simplify the process of choosing the best retirement accounts for you, ensuring they align with your long-term financial goals and current circumstances.
Identifying Sources of Income
Now that you have a grasp of the different retirement accounts, it’s important to identify your other sources of income as you plan for retirement. Common sources of retirement income include Social Security, pensions, personal savings, and investments.
A federal program funded through payroll taxes, Social Security aids retired workers, their families, and individuals with disabilities. Social Security benefits are based on lifetime earnings, meaning those with higher earnings typically receive greater benefits. You have the option to start receiving Social Security benefits as early as age 62, though doing so results in reduced monthly payments. To receive full benefits, you must wait until your Full Retirement Age (FRA). Generally, FRA is set at either 66 or 67 years old, depending on the year you were born.
Pensions are retirement plans provided by employers that set aside funds for employees upon retirement. Pensions may provide defined monthly benefits based on factors like salary history and years of service. Beyond Social Security and pensions, personal savings and investments are vital sources of income during retirement.
Choosing Strategies for the Long-Term
When planning your investments, focus on strategies that balance risk and potential returns over the long-term. Diversification and risk management are particularly effective in achieving this goal.
Diversify your investments by allocating assets across different classes such as stocks, bonds, and real estate to create a balanced portfolio that considers both growth and stability. Maximize the benefits of retirement accounts and consider exploring tax-loss harvesting strategies to minimize tax liabilities. Additionally, regularly review and adjust your portfolio based on your financial goals and risk tolerance. By following these strategies, you can build a retirement portfolio that supports your long-term financial goals and retirement needs.
Calculating Retirement Needs
Just as the best retirement accounts depend on the individual, retirement needs also vary. Begin by estimating your future expenses during retirement, accounting for basic living expenses, health care costs, lifestyle aspirations, and inflation. Remember, it is better to overestimate rather than underestimate your retirement needs.
Next, refer back to your sources of income, including estimated Social Security benefits, pensions, and investments. For example, suppose you estimate annual retirement expenses at $50,000, and Social Security and pension income total $30,000 annually. You'll need $20,000 annually from retirement savings.
Online retirement calculators can help you estimate these numbers. Utilize these tools while being mindful of unexpected expenses and emergencies. Continuously review your retirement plan and adjust as your needs change.
Preparing for Unexpected Events
Life is often unpredictable, throwing curveballs at you from every direction. Planning for retirement isn't just about envisioning a fulfilling future; it's also about preparing for unexpected events that could significantly impact your financial security and overall well-being.
Prepare for surprises by establishing an emergency fund and obtaining proper insurance coverage. Routinely update estate planning documents and consider long-term care costs. Consulting with legal and financial advisors can provide additional guidance on preparing for unforeseen circumstances.
So, there’s a lot to consider, right? However, don’t fret. Retirement planning demands consistent effort to achieve optimal results. Start planning early and be proactive in navigating all elements of retirement planning. By meticulously planning your retirement, you simplify the process and lay a strong foundation for a secure and fulfilling future.
HORAN Wealth is here to help you grow, sustain, and safeguard your wealth. We offer a variety of wealth management services, and we have a team of experienced advisors ready to assist you. Visit https://horanwealth.com/contact to contact us today!
HORAN Wealth is the marketing name of HORAN Securities, Inc. (“HSI”) and HORAN Capital Advisors, LLC (“HCA”). Securities offered through HSI, a dually registered investment firm, member FINRA | SIPC. HORAN Wealth Management (“HWM”) is the associated investment advisory firm. HCA is an affiliated investment advisory firm.