Retirement is becoming a focus for younger groups of people awaiting to enjoy the fruits of their labor. Retiring by age 65 used to be the goal, but today’s workforce is seeking retirement earlier. Regardless of age, creating a stable and substantial income stream during retirement takes careful planning and consideration. So, where do you begin?
Early Planning
It is never too early to start. Building a substantial retirement nest egg requires time. The earlier you begin saving a consistent portion of your income for retirement, the more time your investments will have to grow.
Here’s an example – A Royal Neighbors member began his journey toward retirement in high school. He invested $1,000 as a Junior and could invest up to $7,000 per year in his plan. Four years later, he already has a net worth of $50,000, and his Roth IRA has grown to $31,000. He will enter the workforce full-time after graduating from college in 2024. At this rate, his Roth IRA alone will grow to over $1,000,000 by the time he turns 57 years old. When you add his other retirement accounts and pensions, he could probably retire before turning 50!
Consider taking full advantage of tax-advantaged retirement accounts such as IRAs, Roth IRAs, and 401(k) or 403(b) to help your savings grow faster. If your employer offers a retirement savings plan like a 401(k), make sure to participate, especially if they provide matching contributions. Matching funds are essentially free money that can significantly boost your retirement savings.
Create a Realistic Budget
What is your desired lifestyle for when you retire? This is an important question before you estimate how much income you’ll need to support it. Consider essential expenses, including housing costs, food, utilities, healthcare, travel, hobbies, and other significant expenses. Assess your current financial situation by evaluating your income, savings, investments, and debts. Then construct a budget that outlines your expected expenses during retirement. Focus on eliminating debt before retirement to alleviate financial burdens during your golden years.
Be sure to account for inflation and other potential cost increases, especially growing costs for care, both in home and assisted living. Ensure you have adequate health insurance coverage and consider long-term care insurance to protect retirement savings from potential medical costs. It is important to prepare for medical emergencies.
Be conservative when withdraw money from your retirement savings. Some use the 4% Rule1, a guideline that suggests you withdraw 4% of your portfolio in your first year of retirement and adjust with inflation in mind.
Diversify Investments
Spread your retirement savings across a mix of assets, such as stocks, bonds, real estate, and other investments. This can help reduce risk and potentially improve returns, ensuring that your financial future isn’t overly dependent on the performance of a single investment.
Maximize Social Security Benefits
Social Security is a valuable source of income when you retire. The timing of when the benefits are claimed can greatly impact the amount received each month. Delaying benefits beyond the full retirement age can lead to higher payments, providing a more substantial income stream in the long run. Additionally, explore any other potential sources of retirement income, such as pensions or annuities that provide guaranteed income for life.
Remember, retirement planning is an ongoing process and regular review and adjustments are necessary. Stay informed and adapt your strategy as needed to enjoy a rewarding and financially secure retirement.
Starting early, creating a realistic budget, diversifying investments, maximizing Social Security benefits, and accounting for inflation are all essential elements in creating a stable and substantial income for your future. It is never too early to start getting ready for your golden years.
This article is for informational purposes only, you should not construe any information provided as legal, tax, investment, or financial advice. No reader should make any investment decision without first consulting their own financial advisor and conducting their own research and due diligence.
