Regardless of whether you are in your 20s and just starting your first job or in your 40s and in your prime job, if you haven’t started thinking about creating a retirement plan for yourself or you are not sure how to, the sooner that you find understandable early retirement planning advice, the better.
Retirement is inevitable like only a few things in life are. We should strive to retire with peace of mind knowing that we have enough assets saved up, in order to sustain us during our retirement years, and to be debt free at retirement. This will enable you to have a calm and peaceful retirement, the goal of any retired individual, go and ask them.
I will guide you into understanding what is needed to have a structured retirement plan in a simple understandable way. Below are the 5 steps for easy retirement planning. These steps will guide you in creating a successful retirement plan.
1. Understanding Your Current Assets & Liabilities
Start off by sorting out your assets and liabilities by drawing up a balance sheet.
Assets are what is yours or what you own which include the home that you own, your car, any savings, retirement savings, etc.
Liabilities is what you owe such as any debt you owe for example, credit card debt, car loan, your bond, store credit, etc.
The difference between your Assets and Liabilities will help you see what you could use to live off (Assets – Liabilities). Your number one priority is to plan how to settle all of your debts before you reach your retirement age; you want to retire “debt-free”. This is because the less debt that you have, the more disposable money that you have = a happier retirement.
2. Determine Your Post-Retirement Budget – Income vs. Expenses
In the next step you need to have an idea of what your desired income will be versus your future expenses. In other words you need to draw up a post retirement budget today.
You need to prepare a list of the income you expect to get when you reach retirement age. This would include all income for example, withdrawals from investments, annuity income (income from retirement funds), rental income, part-time work, etc.
You will also have to know what your anticipated expenses will be. You will need to know the difference between essential needs and “nice to have” needs.
Examples of essential needs are food, clothes, shelter, water; things that you can’t live without.
Examples of “nice to have” needs are your luxuries, the latest cell phone/tablet, big flat screen television, expensive watch and jewelry, etc.
It is important to split your expenses into these 2 categories because you might find that your expenses outweigh your income and this will force you to cut back on your “nice to haves”, if necessary so that your income is more than your expenses. You can’t live beyond your means today, let alone your retirement.
3. Create a Financial Plan
This financial plan must cover the following:
– how will you get your desired retirement income that you need &
– how will you manage any risk.
After the above steps you should have a good idea of what level of income you will need when you retire as well as what assets (what you own) you have to get that income.
Your next step you need to consider is where you will invest your retirement savings. When you reach your retirement age it is not advisable to be too risky in choosing your investment portfolio, a cautious approach towards investments in your retirement years is advisable. Investing your retirement funds yourself is not the best option because of the risks involved therefore buying an annuity (a product bought from a financial institution/insurance company) that pays you an income) is a more sensible option.
An annuity is basically a contract that you buy, from an insurance/investment company, with your retirement funds. They then pay you a regular income which is similar to your salary. There are many types of annuities and some annuities pay you a guaranteed income for the rest of your life. You must choose an annuity that will give you the desired income that you need and that matches your needs.
Here is a list of the risks that could affect your financial well being in your retirement years:
Longevity Risk – this is life expectancy, how long will you live for. The longer that we live for the longer your retirement funds will have to last for.
Unexpected Expenses – expenses that we don’t anticipate can eat away at your retirement income for example, unexpected renovations to your home after a storm, your car breaks down, etc.
Poor Health – this can lead to high medical bills.
Inflation – this determines the buying power of your money. Over time the value of your money depreciates; so if inflation is 7% then your money needs to grow at 7% in order for it to retain its value and buying power.
4. How to Reach Your Retirement Income Goals
What happens if no annuity that you choose can give you the desired income that you need at retirement? You will need to go back to the Budget that you created and look at the “nice to have” expenses that you can do without and cut them out. Another option is that you can look at the assets that you could sell. For example, sell your car for a less expensive car or sell your house and buy a smaller house.
If you still can’t meet your desired retirement income needs here are a few options that you should consider:
– Rent out a room in your house.
5. Don’t Wait Until Retirement – Plan Early & Review
The best option that you have is that you should not wait for the day that you retire before you have a post-retirement plan to secure your post-retirement income, plan today and get early retirement planning advice as it can only benefit you positively once you have retired.
If you find that your current retirement savings will not give you enough funds to reach your post-retirement income needs, increase your annual/monthly savings contributions. If you need other sources of income when you retire, you can build up the required skills today or you can also speak to potential employers.
No single retirement plan is perfect and no matter how good your plan is, circumstances and life always change. You will need to review and update your retirement plan regularly and check if it is still appropriate and if you are still on track to achieve your post-retirement income goals. If your standard of living changes, you need to review your retirement plan – your income needs might have changed.
Your Retirement Plan – Your Retirement Freedom
Creating a retirement plan early and seeking early retirement planning advice can only improve your chances of retiring stress free and be in a better position to reach your post-retirement income needs.
Remember that when you reach retirement age you want to maintain your standard of living, not improve or worsen it, so as far as I am concerned an early retirement plan is as important as any other plan that you can do. Plan today for a better tomorrow, tomorrow is inevitable just as retirement is. So start planning away!
On a final note check out my review on my website, it could lead to your Retirement Freedom – click here NOW