Want a Generous Retirement Income? Here Are 4 Steps You Must Take
It doesn’t matter if you’re close to retirement or starting to plan during your twenties – get this right and you are sure to have a comfortable retirement. As you begin to figure out your retirement income, use these four steps to get you on the right path. They’ll give you a great overview of what you need to consider, as well as setting you up to create the nest egg of your dreams.
1. Plan, Plan, Plan
If you don’t take charge of your own future, nobody else is going to do it for you. It’s up to you to put the right plan in place to make a secure future for yourself. It doesn’t matter how long you have left until retirement, just make sure you are learning as much as possible about every income and retirement strategy. Those who start planning sooner will have much larger nest eggs than those who don’t.
You can start your plan by using an Excel spreadsheet or a piece of graph paper to figure out your income plan in the form of an annual timeline. Putting it down on pen and paper or onto a computer screen is a great way to see exactly what money you’ve got coming in and what is going out. It’s useful to play with some of the online retirement calculators too, but be careful with your assumptions. A plan is only as good as the assumptions you use. Assumptions include how much money you’ll need to live on after retirement and how long you expect to live.
2. Learn Like You’re 5 Years Old
To get ahead, you need to start thinking about investment strategies that will maximize your retirement income. It’s possible that you might need to learn from a fresh perspective and unlearn old ways of thinking.
The best retirement strategies combine sources of guaranteed retirement income with investments that let your money grow and stay ahead of inflation. Instead of aggressively investing like you would in your younger years, it’s time to focus on securing a reliable outcome. The end is in sight, so it’s a bad idea to risk it all.
As you plan more, you’ll need to find the answer to questions like “should I pay the mortgage off before retirement?’ and ‘should I take my pension as a lump sum or lifetime annuity?’ These decisions can have a huge impact on your personal situation, so you must do research instead of just winging it. In addition to this, don’t make decisions based on what your friends, neighbors, or relatives are doing. Everybody’s situation is unique, while one decision might benefit your neighbor it might be a mistake for you.
3. Consider When You Want to Retire
Despite wanting to retire early, you’ll need to outweigh the pros and cons of doing so. Early retirement, which means retiring before you hit 65 years old, requires more savings or sacrificing your standard of living so that you can live on less money. Once you reach 65, you are eligible for Medicare and some of its subsidized costs. But, until then, health care insurance premiums can be expensive.
Also, the ability to earn a salary is a powerful asset to have. For many people, the premature ending of a career can be expensive. Choosing the right time to retire will be the difference between a comfortable retirement and one riddled with money troubles.
4. Don’t Forget About After-Tax Income
It’s a common thing for retirees to underestimate the amount of tax they will pay during their retirement years. Don’t make the same mistake, as often, assumptions or guesses are wrong. For instance, if you use the 4% rule of thumb, you might think you can withdraw $4,000 per $100,000 of savings. But, if that’s in an IRA or 401k, the after-tax amount might leave you with just $2,000 – $3,000.
It’s important to know which retirement accounts are taxed and how much. Then, once you’ve estimated your after-tax income you will know how much money you have to cover living expenses. However, remember that over time everything changes. Some states tax both retirement income and Social Security.
Hopefully, your transition into retirement will be smooth. If you work alongside a tax professional or qualified retirement planner, you’ll be able to get more accurate projections and know exactly what to expect during your golden years.