Did you know that Americans are falling behind on the money they need for retirement? On average, Americans approaching retirement age only have 12 percent of the money they need.
If retirement is still a few years away for you, the last thing you want is for it to take you by surprise.
Read on to learn some of the retirement preparation basics.
1. Take a Look at Your Savings
When you make the decision to retire, the first thing you need to do is take a look at your retirement savings. If you have a healthy 401k or IRA, you should figure out what that means as far as cash in your pocket.
For example, if you have $500k in your IRA account, it might seem like a lot of money. However, the rule of thumb for IRA accounts is that you should only withdraw 4% of your balance on your first year as a retiree and adjust as the years follow.
This means if you have $500k in your IRA, you will only have a yearly income of $20k your first year.
If you’re counting on a pension from Social Security, you should know sometimes there are unexpected delays. It’s important you have at least three to six months worth of living expenses free in your savings or checking account to ride out any delays.
2. Put Together a Retirement Budget
After you figure out how much money you will have at your disposal during your golden years, you should make a budget. After all, you want your money to last you so you can have a comfortable life for the next 30 years.
Make sure you create different scenarios on how you will spend your money. Although you might not spend money on commuting and other work expenses, you will spend money in different ways. For example, you might have more healthcare bills.
3. How Will You Spend Your Time?
You might have an idea of what you will like to do with your time when you retire. However, you have to make sure it’s financially possible.
Make a plan on how you would like to spend your time.
4. Reduce Debt
As you prepare for retirement, you should look into reducing your debts.
Start paying off any high balances, such as credit card debt and car loans. Also, try to avoid acquiring any more large debts.
5. Be Smart About Your 401k and IRA Investing
While it might be a fun idea to make riskier investments in your 401k and IRA accounts early on in the game, the stock market is not predictable.
When you’re approaching retirement age, you should move your money from riskier investments into safer investments. You should also learn more about investing so retirement doesn’t catch you off guard.
Start Your Retirement Preparation Today
Thinking about retirement preparation should be an exciting time in your life!
Don’t let it take you by surprise. Start by reducing your debts, deciding how you will spend your time, putting together a budget, and breaking down your savings.
Check out this article to learn more about financial planning and forecasting.