Saving for retirement is a critical goal for people of working age across the modern economy, a way to provide for your golden years and utilize the many incentives that exist to encourage this process.
While putting money away with no plan for how it will be used is much better than not saving for retirement at all, it pales in comparison to a fully developed strategy for how to save, predicted financial needs and standard of living considerations. Let's consider how you can develop your retirement goals, compare them to your current retirement strategy and adjust both as necessary to reach a more positive outcome.
One of the easiest topics to tackle when it comes to retirement planning is your personal and family goals for your life after you leave the workforce. You may want to answer questions like:
- How will I address long-term healthcare needs and similar quality of life concerns?
- Do I want to live in the same area I currently do, or move somewhere else? If I want to move, where do I want to go?
- What sort of home do I want to live in? Would an apartment or condo be better, or do I want the space a larger house provides? Is a winter or vacation home a major priority?
- What sort of hobbies and activities do I want to pursue in retirement? Do any of these interests require a significant investment, whether a boat for fishing or a workshop or craft space?
- How frequently will I want to travel, shop and enjoy other pursuits that require spending? Which ones are the most important to me?
There are also a number of more individual questions that you may want to answer. From continuing to donate to nonprofits in retirement to whether you want to keep commitments like buying season tickets to your favorite sports team, you should assess your situation on an individual level to start creating goals.
A critically important part of retirement goal planning is to determine your current financial position and the level of investment you need to make between now and your targeted retirement date to address the needs and wants outlined above. Financial advice website DaveRamsey.com pointed out a few core money-focused questions to address that are strongly connected to your retirement goals, including:
- How much money will I need to pay for the things I want and need to do in retirement?
- What will I need to invest each month to reach my overall target savings goal? The general guideline for this consideration is 10-15%, depending on your specific needs.
- Which type or types of retirement accounts should I use?
- Which specific investments within those accounts make the most sense for my retirement needs?
Depending on where your retirement planning has progressed to at this point, you may be able to easily set goals with just a few changes to your strategy. On the other hand, you may need to start building your plan from the ground up. Regardless, the best place to start is with your current retirement contributions.
If your employer offers a retirement savings option and you're not already using it, you should consider taking advantage of this choice. The two major options in the public sector are:
- Traditional 40(K) plans, which allow you to contribute pre-tax dollars to your retirement savings. You only have to pay taxes once you start withdrawing it after retirement and the money has had the chance to grow through investment.
- Roth 401(K) plans, which take post-tax dollars to use for long-term investment. The benefit here is that your withdrawals in retirement are all tax free.
If your employer offers any kind of a partial or full match on retirement savings, the benefit is even stronger. In the long term, you're increasing your pay and your savings without any changes beyond electing to make a contribution that you'll almost certainly need later in life.
With an understanding of what your projected earnings are between now and your goal retirement age along with a list of goals and plan for contributing to your retirement funds, you can look for any discrepancies. If your projected retirement income and the financial obligations of your goals largely align, you won't have many changes to make. If you're looking at higher projected costs than income, you'll need to take one of two approaches: contributing more to your retirement savings or reducing spending in certain areas. A good place to start is with scaling back wants, still traveling or eating out but doing so less frequently, as opposed to trying to cut down on needs.
A stable financial foundation is important for all short- and long-term savings and spending needs. To learn more about how TAB Bank can help you address your core personal banking needs, get in touch with us today!
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