Most people dream of a day when they can quit their jobs and enter retirement, a time when one can finally enjoy the fruits of his or her hard labor.
Thoughts of retirement center on dreams of traveling the world, spending time with family and friends, or engaging in hobbies to pass the time. The reality of retirement, however, can be less rosy – filled with unforeseen expenses and worries about having enough funds set aside to maintain one’s lifestyle. Retirement planning, then, becomes a critical component of preparing for a secure financial future. Here’s how to get started on a retirement planning strategy.
Step 1: Establishing a Plan
The first step in retirement planning is to create the plan itself. While there are many time-honored ways of accomplishing this critical first step, the very best way is to seek professional help. A certified retirement planning professional can help you identify current and future expenses, then prepare ways for you to begin setting aside a portion of your salary for your financial needs after you are no longer working. With their help, tax-advantaged strategies can be explored, giving you all the information and options you need to make smart financial decisions.
Step 2: Creating Retirement Accounts
There are myriad options when it comes to funding a retirement, and just as many types of retirement accounts in which to set aside money for the future. Some of the most popular account types include:
- Traditional and Roth IRAs
- Employer-sponsored 401(k) and 403(b) plans
- Stock and bond investments
- Real estate investments
- Government-backed pensions and benefits programs like Social Security
It is always a good idea to diversify one’s investments, and that includes retirement plans. Spreading funds between multiple accounts and investment choices helps protect asset values from market fluctuations.
The sooner one establishes retirement accounts, the easier it is to create a solid financial future. If one begins to fund retirement accounts early on in their careers, the power of compounding interest will help to ensure that the assets grow in value without too much input on the account holder’s part. If you were to start the retirement funding process later in life, there are still options – a retirement planning professional can recommend certain strategies like annuities or direct investments that can create a steady stream of income to be used for retirement expenses.
Step 3: Funding and Managing Retirement Accounts
Now that you’ve created a plan and established retirement accounts, it is time to begin funding them. For Traditional and Roth IRAs, there are certain caps on the amount one can contribute each year, and there are also specific regulations on taxation and withdrawal of funds from these accounts. Your retirement planning professional can help guide you through the particulars of each of these retirement options.
If your employer offers a 401(k) or similar plan, contributing to it via paycheck withdrawal is relatively straightforward. Many employers match funds – including dollar-for-dollar matching – so it makes smart financial sense to take advantage of these plans whenever available.
Direct investment in retirement assets like stocks, bonds, mutual funds, or real estate help to protect against volatile market conditions. Here, diversification is very important – try to invest in multiple industries, such as technology, energy, agriculture, and manufacturing, just to name a few of the many options.
With a solid retirement plan in place and diversification of retirement assets, it is easier than ever before to get ready for one’s life after their career is completed. By preparing for your retirement using the steps above, you can help to ensure a comfortable and secure financial future for you and for your loved ones.