Retirement looks different for everyone. Just like cars, where some may share the same model but differ in features, each person's retirement journey is unique. However, there are essential principles that everyone must consider to ensure a successful retirement. In this blog post, we’ll explore seven unavoidable principles that can help you build a solid retirement plan.
One of the most critical aspects of retirement planning is preparing for a longer life. While no one can predict when they will pass away, statistics show that many people live well into their 90s. For instance, there’s a 54% chance that a woman will live past age 90, and a 43% chance for men. If you plan for retirement expecting to live until 80 but end up living to 85, those last five years could be financially challenging. Therefore, it’s essential to plan for a longer life and ensure your assets are directed to a place you care about if you pass away early.
To supplement your income during retirement, you need to have enough investments. For example, if you earn $175,000 and are 55 years old, you should aim to have around $1.2 million saved by the time you retire at 65. This amount will help you maintain a comfortable lifestyle throughout your retirement years. Investing more now can protect you from financial difficulties later.
Social Security is a crucial component of retirement income for most people. It’s vital to maximize your benefits by making informed decisions about when to take Social Security. Don’t take it early unless absolutely necessary, and don’t delay it if it doesn’t fit your situation. Spend time understanding your options to make the best choice for your retirement.
Having assets is not enough; they need to grow over time. Sticking all your investments in bonds can expose you to inflation and longevity risk. If you plan for a 30-year retirement, your assets must continue to accumulate to provide income in the future. Staying invested in the market, rather than trying to time it, is crucial for long-term growth.
Healthcare costs are an unavoidable reality as you age. It’s essential to have a plan to cover these expenses, which can include Medicare premiums and out-of-pocket costs for services not covered by insurance. Just like a car needs wheels to function, your retirement plan must account for medical expenses.
Retirement income can come from various sources, including Social Security, pensions, annuities, health savings accounts, Roth IRAs, taxable accounts, and pre-tax accounts. Understanding how these income sources are taxed and strategizing when to withdraw from each can significantly impact your overall tax bill and financial health in retirement.
Cash is king when it comes to protecting yourself from unexpected expenses. While cash doesn’t combat inflation, having enough liquid assets can safeguard you during market downturns. Retirees should aim to have several months’ worth of cash reserves to cover bills, medical costs, and other expenses without relying on volatile investments.
These seven principles are essential for anyone looking to build a high-quality retirement plan. By planning for longevity, accumulating sufficient investments, maximizing Social Security, ensuring market returns, preparing for rising health costs, diversifying income sources, and maintaining cash reserves, you can set yourself up for a successful retirement.
If you’re struggling to create a solid retirement plan, don’t hesitate to reach out for help. At ProPath Financial, we specialize in pre-retirement and retirement planning to ensure you have enough money to last throughout your retirement years.