Retirement without regrets takes years of planning, saving money, and sticking to it.
expected average retirement age According to a Gallup poll, he is currently 66 in the United States. Upon reaching this age, Average life Men are 16 and women are 19. This means that he has been out of work and enjoying life for less than 20 years.
Retirement is an important stage that prepares you for decades of hard work so that you have enough savings to enjoy your golden years. The checklist below outlines the steps you need to take to ensure a comfortable retirement.
When should you start planning for retirement?
When it comes to retirement, it’s always a good idea to start saving early. Start planning your retirement in your 20s, 30s, or when the paychecks are starting to roll in.
Starting early gives you room to make mistakes and recover from them, and the power of compounding can significantly increase your savings.
Even if you missed saving money when you first started working, there’s still hope, but you’ll have to work twice as hard.
retirement readiness checklist
1. Know how much money you need
Preparing for retirement generally means saving 10% to 15% of your pre-tax income. The goal is to have enough money to cover 70% of my pre-retirement salary each year.
To help you track your progress, you can save a specific goal amount based on your age. Below are the recommended incomes you should set aside for each age to ensure a comfortable retirement. fidelity.
- Age 30 — save a year’s salary
- 40 years old — 3x annual income
- 50 years old — 6 times your salary
- 60 years old — eight times your salary
- 67 years old — 10 times your annual income
In addition, retirees receive a monthly Social Security retirement benefit, the amount of which depends on their retirement age.
Social Security retirement benefits replace up to 40% of your pre-retirement earnings. The replacement rate is determined according to the income during the working period, and the replacement rate is higher for low-income and middle-income earners.
retired seniors full retirement age In 2023, you can receive benefits of up to $3,627 per month. People who retire at age 62 receive up to $2,572.
2. Start budgeting
Set a budget and make sure you have enough money. Use only what you need. This will make it easier for you to manage your finances and make you more aware of how you spend your money each month.
It’s also important to track and break down your expenses into fixed costs (rent, utilities, monthly payments, etc.) and variable costs (shopping, gas, eating out, etc.).
Check your variable costs. In this area, you can often find expenses that can be cut.
Another way to budget is to use the 50/30/20 rule, which divides net income into three categories.
- 50% of necessary expenses — essential expenses such as rent or mortgage, bills, groceries, etc.
- 30% Wants — This includes shopping, entertainment and travel.
- 20% of your savings — This includes savings, retirement, and debt repayments (credit cards, loans, etc.).
3. Pay off debt
To ensure that you have enough savings to support your desired standard of living in retirement, you should pay off your debt before you retire.
Paying off your debt now will give you more flexibility later. List your debts and their interest rates. Try to pay more than your monthly minimum and prioritize those with higher interest rates.
Try not to take on any more obligations while paying off your debts. Once you’ve paid it off, consider putting the same amount you put into savings as you used to pay off your debt.
Debt consolidation loans offer lower interest rates, so you pay less interest overall and can pay off debt faster. A debt management program can also reduce your credit card payments by 30% to 50%.
4. Contribute to a retirement savings plan
If you have access to a retirement savings plan, consider maximizing your contribution. Doing so is one of his ways to achieve financial independence later in life.
Be sure to contribute enough to your 401(k) retirement plan to be fully matched with your employer.
Consider opening a personal retirement account. The annual cap for 2023 is $6,500 for him, or $7,500 for him if he’s over 50.
Likewise, maximize your contributions to your health savings account. His HSA contribution limit for 2023 is $3,850 for him for personal coverage and $7,750 for him for family coverage.
Eligible 55-year-olds may make an additional contribution of $1,000.
5. Choose the right investment
Choose the right retirement investment options that can provide future growth and generate a stable source of retirement income.
You should invest in a diversified portfolio that can weather the ups and downs of the market and that fits your risk tolerance. A diversified portfolio can combine stocks, fixed income assets, real estate investment trusts (also known as REITs), and more.
Investing in stocks promises high returns over the long term. Bonds offer lower long-term returns but higher stability.
Manage your investments with a voluntary brokerage account or let the experts manage it with a robo-advisor.
Whatever path you choose, be sure to invest for the long term and avoid the urge to take unnecessary risks that ruin your retirement plans.
6. Create an emergency fund
An emergency fund is a cash reserve set aside for financial hardship or unexpected expenses.
Open a separate account for your emergency fund and automate donations to that account. Emergency funds are best kept in a high-yield savings account that’s easily accessible with no monthly fees.
In general, setting aside three to six months’ worth of expenses for unexpected expenses will help you avoid unnecessary debt.
7. Review your insurance
Before you retire, organize your insurance and decide where to get your medical insurance.
Social Security is not enough to cover health care costs, and Medicare coverage is only about two-thirds of health care costs.
Health care is often the most expensive expense of retirement, with many retirees paying hundreds of thousands of dollars in medical bills.
A 65-year-old healthy couple retiring in 2022 is expected to spend: about $315,000 For self-pay at the time of retirement.
Fortunately, retirees can benefit from other insurance policies such as the Blue Cross Blue Shield plan, Medicaid for low-income seniors, and Medicare Supplement Plans.
8. Check the real estate plan
Prepare an estate plan to avoid problems after you die and to ensure that your property is distributed according to your wishes.
Create a will, establish guardianship for your surviving dependents, appoint someone to act as your health care representative in case you become infirm, and assign a power of attorney.
Designate a beneficiary for retirement accounts, life insurance plans, and shared assets. Be sure to notarize all documents containing personal data and keep them in a safe place.
Your estate plan should be reviewed every few years and updated whenever life-changing events occur.
9. Consider retirement activities and interests
Financial aspects aren’t the only things to prepare for after retirement. Take time to decide on your retirement activities and interests as well.
Most people dream of the day they retire and start living for themselves. However, according to one study, 6% to 9% of his retirees will experience symptoms such as: deteriorating mental health Within 6 years after retirement.
Therefore, it is a good idea to make a list of things you want to do after retirement. Consider educational and challenging activities that expand your mind and promote health and well-being.
The most common things to do after retirement include moving to a new place, traveling, and taking up new hobbies or sports.
Are you ready for retirement?
Timing is everything to a successful retirement. But how do you know if you’re ready for retirement?
The first sign is obviously when you reach full retirement age of 66. You can retire at age 62, but the benefits you receive will be significantly reduced.
Once you’ve paid off all your debts, you can prepare to retire. Getting rid of debt reduces financial risk and makes it easier to plan for the income you need.
Another sign of retirement readiness is whether your investment portfolio is hitting the magic numbers you need to finance your retirement. To be sure, consult your financial advisor. Carefully reassess your portfolio to determine if any adjustments are necessary.
Use this ultimate checklist to plan for retirement and ensure a smooth transition to one of life’s most important stages.
Corrected June 5: An earlier version of this article stated that, based on life expectancy at birth, people only have about 10 years to enjoy life after work. The replacement rate of social security was also clarified.