Retirement is when your time and your money should not be in a constant race with each other. It is the time for you to relax, take a break, and do the things that you have always wanted to do in life. While most people look forward to a relaxing post-retirement period, others may dread it due to financial reasons. To avoid falling into a financial crunch before retirement, it is important to do some strategic planning.
Let’s discuss some of the most successful strategies for retirement planning:
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1. Set your retirement goals, make a solid plan, and start saving
You likely have aspirations for your post-retirement period. For example, you may want to travel the world or write a book. Or perhaps build a house. So, for any such ambition, you need to write down all your goals and make a proper plan, considering your current income and the income you are likely to receive by the time you retire. You may be 30 years old now. At this point, most of your income is probably going to be invested in bigger investments like stocks, etc.
Then, you may have set up an emergency fund worth at least 3 times your monthly salary. With loans, debts, mortgages, and household expenses, it is understandable that you will find it difficult to set some money aside for your insured retirement plan. So, one strategy that works well for most people is that they set a separate account for this purpose. The day their salary hits their bank account, some of the funds automatically go into their retirement account. This way, there is no chance for them to use that money for their current expenses.
There are different types of retirement accounts. Their differences come in the way their taxes are deducted. For the Traditional IRA, the money keeps accumulating in the account. When you withdraw it finally, that is when you must pay tax. Which often comes as a “tax hit.”
On the other hand, the Roth IRA is the one where tax is deducted when money goes into your account. In a way, this is a more easily manageable type of account in the long run.
2. 401(k) Account
This retirement account is offered by your employer. In this agreement, the employee agrees that the employer will deduct a specific percentage from the pre-taxed pay check of the employee. This amount is then used for stocks, bonds, or any other form of investment of the employee’s choice. This account is similar to a Traditional IRA. However, the difference is that this one is employer-dependent, while the Traditional IRA is an individual account and does not depend on your employment.
Financial experts suggest that it is better to diversify your savings and not rely only on one account. When you change jobs, you can transfer the collected funds in your 401k account to the other that you set up with your next employer.
3. Pay off your debt
Your aim should be to reach your retirement completely debt-free. For that, you will have to work a little harder in your prime working years. To pay off all the student loans and other kinds of debts, you will have to formulate a good strategy. You should not have to worry about the money you still owe to others even in your golden years of retirement.
4. Get an Annuity from an Insurance Company
It is an insurance product – a contract between a policyholder and an insurance company. The policyholder buys an annuity on fixed or variable terms from an insurance company like Canada Life. They either pay as a lump sum or in the form of regular premiums. In return, the insurance company pays back the money in the future.
It is a great way to save funds for your retirement period. If you buy a fixed annuity, your returns will be the same as the principal you paid, along with minimal interest. If you buy a variable annuity, your principal investment is guaranteed, but the returns depend upon the way your investments perform. So, they can be low, or they can be high.
In any case, this is one of the most important strategies that can benefit you when you retire.
Wrapping it up
Following the strategies above will help you ease into a long-awaited retirement plan, and will also help make your family’s life a lot easier!