Financing Freedom

How to prepare your finances for retirement

You’ve spent your whole life working hard and now you’re looking forward to enjoying your retirement. But it can be hard to enjoy the prospect of nearly two decades without work if you, like so many Americans, are worried about the state of your finances. There’s no one size fits all retirement plan, but there are several steps you can follow to prepare yourself for stress-free financial freedom.

  1. Do your homework

A successful and stress-free retirement requires a lot of preparation long before your last day. Meet with a fanatical advisor and keep up with the latest retirement trends. Invest in a book or two on retirement and play with online retirement calculators. Joann Wenk of Golden Valley Credit Union says having a plan is critical and helps individuals save on expenses such as health insurance and car insurance. Familiarize yourself with your options so if you’re faced with a difficult choice down the road you will know the best way to navigate the situation. However, no one knows your situation better than you do, so be sure your choices are well informed and not just well intentioned.     

  1. Streams of income

“Diversify” seems to be a magic word when it comes to investing for retirement. You might find yourself wondering how to actually accomplish that, but the idea is very straightforward. According to the National Academy of Social Insurance, retirees receive an average of $1,369 a month in social security. That alone isn’t enough to live on and how much you receive is based on how much you made while working and how many years you worked. 

So, where does the rest come from? Many employees are able to set aside a portion of their annual pre-tax income with a defined-contribution plan such as a 401(k), 403(b), or 457 plans. Another option is an Individual Retirement Account or IRA. Both defined-contribution plans and IRAs may be subject to taxation just like ordinary income if taken before the age 59.5. Doing your research cannot be overemphasized. The remainder will come from personal savings and investments that you’ve been building throughout your career. Which leads us to number three.

  1. Start saving early

According to the 2019 Boomer Expectations for Retirement report from the Insured Retirement Institute, 45 percent Baby Boomers (those born between 1944 and 1964) have nothing saved for retirement. If you’re nearing retirement and haven’t started saving yet, this should be an immediate priority. The later you start, the longer you’re going to be putting off retirement and the less time you’ll have to make up the difference.

  1. Make a retirement budget

Groceries, electricity, mortgage—all the expenses that come with day-to-day life will still apply in retirement. Track your spending now so you can anticipate your expenses in retirement, and don’t forget to factor in the cost of eating out, entertainment, travel, and other hobbies and activities. You’re going to have more free time than ever once you retire, but it won’t do you much good if you don’t have the spending cash to get out of the house and do something you enjoy. If possible, pay off your mortgage and vehicles before retirement and consider downsizing to a smaller house. Be sure to set aside emergency funds in case your sources of income are temporarily tied up, you have unexpected medical expenses, or for any unexpected emergencies.

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