Today’s financial post is written by a guest blogger, Patricia Sanders. She is a freelance writer and financial blogger. She writes articles for the Debt Consolidation Care Community and can be reached at firstname.lastname@example.org.
Most of us dream of a retired life without stress and debt — one of financial security. Unfortunately, it doesn’t just happen, it takes work and proper planning. In this post, we will discuss retirement planning and how you can properly plan to secure your golden years.
Why is retirement planning important?
Many people don’t understand the importance of retirement planning and later regret not being prepared for what should be the best years of their life. Why plan? Here are a few reasons why.
- To prepare for medical emergencies
Medical issues are quite common in retirement life — as we age, unexpected health issues arise. So it’s important to have funds set aside for medical expenses without jeopardizing your post-retirement nest egg. Insurance coverage and a savings account for non-covered expenses will put you in a great position.
- Social security benefits are not enough
Social security benefits are a great supplement, but they’re not enough to meet all expenses in your post-retirement life. Create a retirement fund to cushion your social security benefits and to provide financial protection in retirement.
- Working in your retirement years
If you don’t prepare for retirement, you’ll most likely need to continue working into your retirement years. Unfortunately, health issues can prevent you from continuing work, so savings become important for financial security.
How can you be prepared for retirement?
- Set your goals and start saving
First, set financial goals. You’ll get inspiration by reaching goals you set. If you’ve already started, then keep saving and move forward to the next goal. The earlier you get started, the better. By saving early, you take advantage of compounding and let your money work for you.
- Assess your retirement needs and craft a budget
It takes planning to ensure you are able to maintain your standard of living after retirement. Start by accessing what your current expenses are and formulate a post-retirement budget. Normally, your retirement expenses will be about 80% of your pre-retirement expenses. Make a detailed list of every expense and track that for a year to ensure your planning is correct.
- Take advantage of employer pension plans
Many employers offer traditional pension plans to their employees. Check with your employer to determine if a pension is available and what the plan covers. If your employer does not offer a plan, consider other jobs that may.
- Contribute money to a 401 (k) plan
Most employers offer a retirement savings plan (401k) and some match your contributions up to a certain percentage. If this is offered, max out your contributions because they are tax deferred.
- Invest regularly
With each paycheck, invest a portion of your earnings into mutual funds. Index mutual funds are a great way to mimic the returns of the S&P 500 which averages about 7.5% return per year. By investing regularly and reinvesting all dividends, your investments will quickly compound. Compounding has a snowball effect, your investment dollars begin to grow more rapidly and with 20 to 30 years of this strategy, you will be in a great position for retirement.
Get rid of debt or save for retirement?
What will be your top priority in life: paying off debt or saving for retirement? You should first rid yourself of debt by applying a debt snowball. With the debt snowball, you pay off your smallest debt first, then take the money you were paying for that debt and apply that to your next debt until all debt is extinguished. If your debt is unmanageable, consolidate your debt into a single payment so that you can pay it off with fervor. Once you are debt free, take all of the money you were putting towards debt and apply it to your retirement savings.
About this Blog
Thanks again to Patricia Sanders for writing today’s guest post. Steve and his wife built a software company, sold it and retired early. Steve enjoys blogging about lifestyle freedom, financial independence and technology. If you like this blog, subscribe here to get an email each time he posts.
If you like this post, you might also like these prior posts:
- Financial Independence 101: What are Stocks?
- Financial Independence 101: What are Bonds?
- Financial Independence 101: How are Stocks and Bonds Classified?
** DISCLAIMER ** Financial Information presented on this blog is intended for informational purposes only and is not meant to be taken as financial advice. While all attempts are made to present accurate information, it may not be appropriate for your specific circumstances and information may become outdated over time. Before investing, do your research and seek professional advice.