Many people look forward to retirement. You can do all the things you never had time to do because of work and other obligations.
Retreat isn’t as easy as sitting by the pool or strolling along the beach. It can take years of preparation and saving to ensure you have a comfortable and secure lifestyle after retirement. It’s never too early to start saving money, even a little. You will thank yourself later.
If that seems overwhelming, don’t worry. The best way to start is to ask yourself some basic questions about your retirement goals and schedule. We’ll get you started below.
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How much money do you really need to retire?
There is no hard and fast number that someone should have to retire; it all depends on the individual.
When planning for retirement, you need to ask yourself several questions about how much is enough for you, according to Shweta Lawande, senior advisor at Francis Financial in New York, which offers financial planning, wealth management and other services. .
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When do you plan to retire?
These include: When do you plan to retire? What are your expenses now versus what you want them to be in retirement? What are you currently doing to save for retirement?
“For anyone considering (how much you need to retire), especially those approaching that retirement age, I can’t recommend highly enough working with a financial advisor to create a personalized savings plan and expenses in retirement,” Lawande said.
Determine the amount you will need in retirement
But if you want a more immediate and concrete idea, there are some good estimates of how much you might need, such as assuming you’ll need around 80% of your pre-retirement income in retirement, Lawande said. Early retirement is considered the period during which you decide to retire and choose your retirement date.
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The elements that will determine what you need to retire
Since the amount of retirement savings you’ll need depends on the individual, it’s important to understand your current personal finances versus what you want to accomplish in retirement, Lawande said.
Additionally, you need to consider the finances you will need to support loved ones and family, as well as medical expenses.
Especially when it comes to medical costs, life can be unpredictable, so it’s essential to consider the costs of procedures or medications, even if you’re in good health.
If you plan to travel, entertain, or pursue an expensive hobby, you might want to add additional savings for “more flexible and discretionary spending,” according to Merrill.
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A guideline to keep in mind is the 4% rule, which allows a retiree to have a withdrawal rate of 4% from their financial portfolio each year for 30 years, taking inflation into account over time. time.
Using this rule, people can decide if their investments are reasonable for them and if the numbers can sustain them in any given year in retirement, Lawande said.
When should I start saving for my retirement?
To better save for retirement, you should start as early as possible. If you have a full-time job, start thinking about savings.
Lawande said if you’re earning an income, start thinking about retirement by saving 10% and work your way up from there. On average, Fidelity estimates that you should aim to save around 15% of your pre-tax income each year, including any employer correspondence and assuming you are saving between the ages of 25 and 67.
“It’s hard because retirement seems so far away for people who are so young,” Lawande said. “When you have that number of years on your side for your money to grow in this way, it’s just priceless.”
What is the best way to invest for retirement?
Saving for retirement is important, so is investing for retirement, Lawande added.
Investing allows your money to grow, whether through interest or stock appreciation and dividends, over time. You will be able to contribute less money to reach your goal because investing early allows you to benefit from compound interest.
Compound interest, which Albert Einstein is said to have called “the most powerful force in the universe,” is when you earn interest on interest. For example, if you have $100 earning 5% interest per year, you will have $105 the first year and $110.25 the second. It seems like a small difference, but it adds up, which is why if someone offers you $1 million or a doubled penny every day for 30 days, you should take the penny. By day 30, that penny will be worth several million dollars.
“Consider the investments,” Lawande said. “Let that work in your favor, especially when you have time on your side, before you retire and even beyond.”
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