Retirement is the reward after decades of hard work. While it sounds like an excellent payoff, this period often worries many, especially those whose finances aren’t ready. Some people who don’t have extra income to save during their working years may lack a dedicated fund to sustain themselves during retirement.
Securing finances is crucial to ensure a comfortable and independent lifestyle during retirement. If you’re only a couple of decades close to this period, rest assured that it’s never too late to begin. Leverage your remaining working time because the earlier you start saving, the easier it is to achieve your financial goals and maintain your lifestyle and health during retirement.
In this post, we’ll discuss some approaches to help prepare and secure your finances for retirement.
7 Ways to Secure Your Finances for Retirement
Preparing your retirement funds could be more manageable with these steps.
1. Build a budget
The first step to securing finances for retirement is building a budget, which involves allocating your income toward different categories: needs, wants, and savings. You may create more budget categories as you progress into retirement planning, but these three are the most fundamental aspects.
Try and follow the popular 50-30-20 rule, which entails setting aside 50% of after-tax income for mandatory expenses (e.g., bills, rent), 30% for wants (e.g., travel, shopping), and 20% for savings. Of course, it isn’t a hard-and-fast rule, but it’s a great starting point for even more effective strategies.
Budgeting teaches you to allocate your income effectively, helping you make informed decisions about your spending habits for efficient wealth management. It also discourages overspending, which could lead to debt accumulation.
2. Track expenses
Now, with a budget set, you need to follow it religiously. Track expenses manually or with an expense tracker application to determine where your money is going and help you adjust your spending habits accordingly.
Tracking expenses also helps improve budgeting. For instance, if you’re following the 50-30-20 rule and find that you aren’t maximizing the 30% allocation, you could transfer a portion of this percentage to the savings category to build your retirement fund faster. Ultimately, tracking expenses provides a complete overview of your finances, letting you maximize every opportunity to reach your retirement goals.
3. Minimize debts
Accumulating debt slows your retirement fund’s growth, especially for those with high interest. After all, saving is difficult if a considerable percentage of your income drains toward debt repayment. So, manage and reduce debt as quickly as possible by prioritizing repayments.
Other than minimizing existing debt, limiting new ones is essential to avoid spending money on interest payments. If you have credit cards, only use them when necessary and pay balances on time and in full to avoid accruing interest charges. Most importantly, stay disciplined and committed to repaying debts so that you can start adding to your retirement fund immediately.
4. Plan retirement expenses
Determining precisely how much you’ll be spending once you’re 70 years old and finally retired is challenging. However, you can estimate this figure by setting realistic expectations on the lifestyle you want to enjoy and what you might need during that age.
Some experts believe retirees need of their current annual income for each retirement year. However, given the constantly increasing cost of living and healthcare expenses, this figure could be closer to 100%, if not more.
For instance, if you’re currently spending $50,000 a year for both wants and needs, you’ll need the same amount during retirement—which equals $500,000—for 10 years. Of course, minimizing unnecessary expenses can lower this amount, but don’t expect to eliminate them during retirement since you might want to participate in leisure activities, such as travel.
5. Account for future medical expenses
Leisure, food, and bills aren’t the only expenses during retirement. Another critical consideration is healthcare, which increases as you age. While you can adjust your savings goal to compensate for medical expenses, consider getting long-term health insurance to maximize healthcare opportunities.
For instance, the U.S. government offers Medicare, which covers Americans at least 65 years old, among other demographics. It consists of several plans covering particular healthcare aspects, providing more choices in terms of coverage and costs. Unfortunately, Medicare doesn’t cover essential healthcare services for retirees, such as long-term care.
Therefore, for a more comprehensive healthcare plan, consider applying for a private health insurance policy centered around elder care to supplement Medicare’s benefits.
6. Invest for growth
Saving an enormous amount for retirement can be daunting—the 10-year retirement fund of $500,000 is no easy feat, but rest assured you won’t rely on income savings alone to sustain your retirement. Fortunately, investments are also a viable approach to building wealth.
Keeping your fund in a regular savings account doesn’t let you maximize your earnings, as low-interest rates may cause inflation to catch up and devalue your money. A safer choice is to use a high-yield savings account, which ensures steady growth.
You could also try other investment options. While you might hesitate to purchase stocks, remember that they provide significant returns despite the risk.
Ideally, you should consider diversifying your portfolio to keep your fund safe and minimize investment losses. To limit risks, maintain a well-balanced mix of stocks, bonds, mutual funds, and other investments like businesses and real estate. An advantage of investing for retirement is that you have a longer investment time horizon, which is an opportunity to build a more aggressive portfolio with high risks and rewards.
7. Leverage retirement plans
Leveraging various retirement savings plans that the government, employers, and other private entities offer can also grow your fund.
For example, American employers commonly offer the 401(k) plan, which takes a percentage from your paychecks into an investment account for them to match partly or entirely. There are two types of 401(k), depending on how they’re taxed. However, there’s a limit to how much you can contribute within a year. You may also incur a penalty of around 10% of the withdrawn amount if you take out payments before reaching a specific age.
Similarly, the Gambia has two main options: the National Provident Fund and the Public Service pension scheme.
Make the Most Out of Your Retirement
Preparing for retirement is a vital aspect of financial planning. After all, you’ve earned the right to enjoy life after decades of hard work, so start building a fund to sustain your lifestyle during retirement.
The task may seem challenging, but you can achieve your retirement goals with the right approach. Spend responsibly, minimize debts, diversify your investment portfolio, and consider alternative savings and investment options to maximize your savings. Most importantly, save as soon as possible to maximize your employment income.
It’s critical to take a proactive approach to prepare for retirement to help you enjoy your golden years with the financial stability and independence you deserve.
Kiana Jimenez is a freelance writer and self-proclaimed movie enthusiast. Having a passion for writing and creative media, she holds a degree in Communications. She does freelance writing to keep those creative muscles in practice. Kiana enjoys delving into various topics, from entertainment and lifestyle to social issues. When not writing, you can find her looking up new local coffee shops to try out or curled up with a new show to binge.