Retirement planning can be challenging, but creating a timeline can help ensure your savings stay on track. Here are 5 expert tips for helping to ensure your retirement plans are on schedule at every stage.
1. Set an income goal-and know that it could change. It’s difficult to determine how much income you’ll need in retirement and how much your income will increase over your lifetime. An income replacement ratio of 80% is a reasonable starting point. Set early goals, and revisit them frequently as you approach retirement. Work with your financial advisor to create realistic goals.
2. Plan to increase your savings rate. If you’re 20 years old, saving 10% of your current annual salary is a good start. By age 30, you should be putting away at least 15% per year. Enroll in a qualified employer-sponsored retirement plan, and take advantage of employer-matching contributions. This is free money that can help you reach your ideal percentage contribution. Also consider a Roth IRA for its potential tax-free distribution in retirement.
3. Sketch out how long you could be in retirement. When creating a retirement timeline, one difficult factor is estimating how long you expect to be in retirement. We suggest planning for 20 to 30 years, but strongly recommend a contingency plan in case of an unexpected early retirement.
4. Set the steps to reach your goals. Keeping a budget is essential. Analyze your discretionary spending. Once children are independent, it might be tempting to reallocate money to exotic travel or home renovations, but your retirement fund should come first.
5. A final tip for those in their 60s. Be cautious when withdrawing retirement funds. The money you’ll receive from QRPs in retirement is taxable, and may raise your tax bracket. At age 70½, retired minimum distributions kick in. If you retire earlier, withdraw money over time to lessen the impact of larger distributions later on.
This article provided by NewsEdge.