Retirement is more than just a stage in our lives. For most people, it also refers to a change in our relationship with money. Most of us will make the transition from earning a regular income to living off of our accumulated savings, which may include any of the following:
- Pensions.
- 401(k) plans.
- Individual Retirement Accounts (IRAs).
- Investment accounts.
If you want to know what your retirement may look like, there’s a lot to consider — from how long you want (or need) to work to where you may live and how you may want to spend your free time. If you want to optimize your security and financial freedom during your retirement years, you will need to plan ahead.
The Purpose of Retirement Planning
The term “retirement planning” refers to the ongoing process of setting financial goals and strategies to make sure you have enough savings and income to support yourself when you retire. It involves saving, investing, and adjusting your plans to stay on track. You will also have to consider other factors (such as inflation, market changes, and personal circumstances).
There are certain account types (such as IRAs) that are built for retirement savings. They allow you to contribute a portion of your income with the goal of growing it over time through investments in stocks, bonds, and other assets. You should take the time to understand the different types of retirement savings accounts to see which ones work best for you.
When it comes to saving for retirement, your goal will be to build a sustainable nest egg that you can eventually withdraw from. This money will be used to cover your living expenses and to maintain your lifestyle during your retirement years. If you start early and contribute to it on a consistent basis, you can take advantage of compound interest (which can significantly boost your savings over the long term). It can also help you achieve more financial stability and peace of mind when you retire.
How to Plan for Retirement
Whether you’re a few decades or a few years away from retirement, having a plan will help you feel more confident that you’ll be ready when the time comes. You may be thinking about getting some financial advice to help you with your retirement planning, or you may feel comfortable doing it on your own.
Regardless of where you are in your journey, here are some things you can do to help you plan for retirement:
- Figure out when you may have enough money to retire — Deciding when to retire is far from simple, but running some numbers and determining your monthly expenses can give you a good idea of where you stand. Think about how you want to live when you retire, look at what you’re spending, and figure out where your income is coming from.
- Make a plan to pay off your debts — Taking a look at your current financial status is an important step in retirement planning, because it will give you a clear picture of where you stand. If you have a clear understanding of your current savings, outstanding debts, and future expenses, you can determine how much you need to save and how to allocate your resources more effectively.
- Set up your savings to get you to your financial goals — You most likely have a goal in mind for how much you need to save to be comfortable during your retirement years, and the best way to reach it is to break it down into small increments. Because of compound interest, even small monthly contributions to your retirement savings can add up over time.
- Choose and monitor your retirement investments — Choosing the right retirement investments is an important part of building a secure financial future, and you can start by diversifying your portfolio to spread out your risk. Stocks can give you big returns, but they have a great deal of volatility. Mutual funds and ETFs make it easier to achieve the benefits of portfolio diversification, because they’re professionally managed.
Because there are so many things to consider, many people see the value of hiring a financial professional for their retirement savings plan. This person can help you navigate the complicated world of investing, come up with a strategy that’s designed to meet your financial goals, and give you valuable insights on how to maximize your savings.
If you’re looking for a CPA in Corpus Christi that can help you come up with a strong retirement planning strategy, be sure to reach out to Jennings & Hawley.