Financial security in your golden years is of utmost importance, whether you’re looking to work in your senior years or retire earlier. A secure retirement begins with having the right financial plan and working towards clearly defined financial goals. It is also never too early to start planning towards retirement. Like with most things in life, the earlier the better.
To get started with financial planning, be it for retirement or otherwise, it is imperative to have an honest assessment of the following:
- The current state of your finances including your earning potential, income taxes, financial obligations, debts, insurance, and other financial commitments.
- Where you desire to be financially at a given point in time, say at retirement.
Moving from your current state to your desired state would require deliberate actionable steps. Although this may seem daunting, the service of a professional financial planner eases the burden. Financial planning for retirement also requires having the right attitude. Identify habits that come in the way of effective planning like spending beyond your means, procrastination, and others.
A Step-by-Step Guide to Financial Planning for Retirement
- Estimate Your Financial Needs: There is no standard calculation for the amount of money you would need for retirement. The correct figure would depend on your age, lifestyle, family condition, and other personal circumstances. An estimate of how much you spend to maintain your pre-retirement lifestyle is an excellent place to start, a professional financial planner should be able to work with you to determine what percentage of this you would need to maintain your lifestyle after retirement.
- Create a Realistic Budget: Based on your current financial state and estimated financial needs at retirement, create a financial plan that lets you invest and set aside savings specifically targeted at retirement.
- Open a Retirement Savings Account: Find out from your bank and financial planner what retirement savings accounts are best suited for you. Also, take advantage of retirement savings incentives provided by the government as well as your place of work.
- Plan for Taxes: Understand what portion of your retirement savings would be taxed, if at all.
- Build an Emergency Fund: Let’s face it, life sometimes throws curve balls despite one’s best plans. An unforeseen circumstance may put you out of work for some time or even cause you to retire early. Having funds set aside for such situations would help ensure you stay on track with your financial goals. Ensure you have active insurance cover for medical and other emergencies.