How to Make the Most Out of Your Retirement Planning
Posted by AJ Health and Wealth on
You’ve worked hard your entire life. What could be better than relaxing and enjoying your golden years? Well, unfortunately, 49% of people ages fifty-five and older don’t have any retirement savings.
Your retirement planning is one of the most important decisions you’ll make in your adult life, and the success of your retirement depends entirely on your ability to choose the right plan (and plan B).
Fortunately, we’re here to help. Keep reading for everything you need to know about how to make the most out of your retirement planning.
1. Understand Your Retirement Income Options
If you’re reading this while under the age of 40, congratulations! You have the most options available to you by far when it comes to planning for retirement. Time is easily the most valuable component of any retirement savings plan, so give yourself as much of it as possible.
Unfortunately, if you’re forty-five and you’re just starting to plan for retirement, saving enough in 20 years can be a challenging task.
If your job offers a pension, you’re one of the lucky few! For most, pensions are primarily for government workers. Less than 4% of private-sector workers are retiring with a defined pension plan.
Pensions are offered to certain employees who have been with an organization for a designated period, usually 10, 20, or 30 years. After retirement, they’ll earn a certain percentage of their retirement for an indefinite period. For example, a teacher who retires after 30 years may receive 80% of their final salary of $70,000, which would be $56,000 a year before taxes.
While pensions are one of the most secure retirement options, they certainly aren’t guaranteed. Many workers have lost their pensions for one reason or another within a few years of retirement. For that reason, it’s best not to rely on pensions as your sole retirement security option.
Social security covers a lot of workers, as most employees buy into it through their payroll taxes, but it’s hardly enough to live off of for the majority of the population. The average monthly check is around $1,500 per person, which isn’t enough to cover most people’s expenses.
If you’re planning on moving somewhere more affordable, there are countries that accept American retirees who can prove they receive social security! This is something to keep in mind. However, if you’re planning on staying in the US for retirement, $1,500 a month will mean that you’ll need a part-time job or some type of supplement to your income.
Real Estate Investments
Real estate is a great way to help supplement or build retirement income. A two-unit property with a paid-off mortgage earning $20,000 a year after property taxes, insurance, and maintenance costs could make an enormous difference in retirement. Social security and a stable rental income will be enough for most areas in the US.
You can even do this through your retirement account. There are self-directed IRA real estate investments where you manage a rental property on your own with the money from your retirement account and put the income back in!
However, no investment is 100% safe, and if the neighborhood goes downhill, you struggle to find tenants, or if major repairs are needed, then this could cut into your retirement income. As a supplement, it’s a great investment. As a sole reliance, it’s too risky for most retirees and investors.
If you understand the business world or if you’re young enough to start, building an investment portfolio could be a great way to yield dividends throughout retirement. Real estate investment trusts and certain stocks can yield annual dividends between 0.5% and 8% respectively. With $1 million in your portfolio by retirement, this could be up to $80,000 a year in dividends, and you can continue reinvesting them until retirement!
However, you will need a lot of money in your portfolio by retirement age to secure this. Again, this could be a great supplement to your retirement income, but it may be too risky to rely on entirely.
401K, 403B, IRA, or other retirement funds are a tried-and-true way to save for retirement. If your employer is willing to match your contributions, you can save a lot over the course of 20 or 30 years.
However, for people in higher tax brackets, we strongly recommend investing in fixed annuities as part of your safe retirement planning. This is also great if you’ve reached the deductible limit on your retirement savings, and you still want to save more!
2. Consider Your Largest Retirement Expenses
Retirement savings are only half the battle for your safe retirement plan. Reducing your cost of living is critical to extending the life of your retirement fund.
If you’re planning on staying in your current area, it may take some adjustments, but with the right help, it shouldn’t be a problem. Here are some simple ways to reduce your living expenses in retirement!
Rent or mortgages, property taxes, and home insurance. These are the most significant expenses to consider for housing during retirement. If your mortgage is paid off, then that will amount to significant monthly savings.
However, if you are paying rent or mortgage payments, then this is something to consider in advance. The sooner you purchase a home in adulthood, the sooner the mortgage will be paid off. Consider paying down your mortgage faster as a boost to your retirement savings!
Unfortunately, there is little to no wiggle room on property taxes or home insurance. If you’re worried about making these payments, consider downsizing into a smaller home (or moving to a more affordable area) and using the extra cash you earned from the ale as a boost to your retirement account. There’s a lot you can do to boost your property value by yourself, even if you aren’t very handy!
Alternatively, you can use your property to earn extra money during retirement. If you have a multifamily building, you could rent out one unit to a tenant for some extra income. Otherwise, you could rent out a room, guest home, or ADU on platforms like Airbnb where you could charge between $80 and $300 per night.
Energy is a significant cost during retirement, as the average utility bill in the U.S. amounts to $2,060 a year. Depending on the state where you live and the size of your home, this could be even more expensive.
A fantastic way to prepare for these costs in advance is by investing in infrastructure that can save you money later on. If you invest in energy-efficient appliances, residential solar panels, and the right heating system ahead of time, then you could save a lot of money during retirement!
Yes, most people of retirement age will receive Medicare, but that doesn’t cover everything. There are costs you will have to pay out of pocket, including copays, uncovered procedures, and transportation costs. It’s important to plan for these costs, as you’re more likely to require medical care with age.
Also, don’t forget about life insurance premiums, as this is an important part of your retirement planning. If you’re retiring with a spouse or if you are still providing for family members, then it’s even more important. Everybody in the family needs peace of mind after retirement.
3. Review Your Debt Situation
High-interest debt is a serious detriment to your retirement savings, so try your best to pay it down as soon as possible. Credit card debt and payday loans are the biggest culprits in these regards, so do your best to eliminate these financial burdens as soon as possible. If you have a $10,000 balance on your credit cards with 20% APR and you only make the minimum balance, that’s an extra $2,000 owed at the end of the year.
Well, that’s money that could be building in your retirement account. Don’t fall into money traps. It’s better to pay off a credit card and miss one retirement payment than the other way around.
Remember, planning for retirement is a long-term strategy that requires patience and consistency. One missed contribution is not the end of the world, but building too much high-interest debt might be.
Get Started With Retirement Planning Today!
Now that you know more about retirement planning, use these tips to your advantage and secure your financial future right away. The sooner you do, the better your standard of living will be when you reach retirement age.
Stay up to date with our latest financial tips and feel free to contact us with any questions or for help with your retirement planning!