Planning for your life after you quit your job is vital for a successful and happy retirement. But where do you begin to create a plan that is comprehensive of your finances, health, and real life needs so you'll that retirement you've always wanted?
Retirement planning starts with identifying your resources of income, calculating expenses, initiating a savings program, and managing assets and risk. You’ll be estimating future cash flows to analyze if it is possible to fulfill your retirement income needs.
Retirement planning also means establishing your retirement goals; everything from financial to your health needs to how you will spend your time.
However, a lot of your retirement planning does focus on saving enough money. If you want to go windsurfing in retirement, but ignored your financial goals, your lifestyle goals will be impacted. So let's start with how you should be saving.
Stages of Retirement Saving
- Ages 21-35 (Young Adulthood)
It is better to start investing as early as possible. Compound interest will allow people to earn more interest. The more time you have, the more interest you will earn. Young adults should take advantage of employer-sponsored 401(k) or 403(b) plans from the very beginning of their career. 401(k) plans are exempt from income tax until the person withdraws them. The contributions toward 401(k) will be deducted from your gross income, so it’ll give you an immediate income-tax break.
- Ages 36-50 (Early Midlife)
Early midlife usually brings several financial burdens, such as credit card debt, mortgages, student loans, insurance premiums, and medical bills. So, it’s difficult to save as much as before at this stage of retirement planning. You may tend to aggressive savings to gather more money.
- Ages 50-65 (Later Midlife)
In the later midlife, the time will be running short to grow your savings. But there are a few advantages of later midlife.
The wages will be high and potentially having some of the aforementioned expenses paid off by this time. People may experience difficulties in paying off credit card or making monthly mortgage payments, student loans, etc.
Steps of retirement planning
A true retirement plan, with the goal of security and happiness, must be comprehensive of finances, health and life needs.
So, the steps of a perfect retirement planning are:
Step 1: Assess your current financial situation
Retirement planning can be considered as any other budgeting process. Here you must understand the balance between income and your expenses.
a. Estimate longevity
That’s a bit challenging but you can do that! You need to estimate how long you and your dependents may live. Considering health factors and your mental state, you need to assume the possible years for you and your dependents.
b. Calculate retirement expenses
You need to determine how much money you will require to maintain your lifestyle after retirement. Consider medical expenditures first, healthcare, insurance, and other living situations.
c. List all assets
List up all of your assets such as your house, savings, stocks, etc.
d. Find out your retirement Income
Check all of your social security benefits, rental income, dividends, pension or any other income.
e. Start balancing your income & expenses
Compare your income with expenses by listing out how you current spend your money.
f. Turn your assets into guaranteed income
Sometimes an annuity can be a stable source of retirement income. What you give up in potential returns on your assets you trade for a dependable, assuming the issuer stays in business, source of income.
Step 2: Avoid unnecessary expenses
It is time to reduce the cost of housing, debt, luxuries, or other unnecessary expenses. Make sure these costs should be less than your retirement assets.
a) Get out of debt
Do not retire with high-interest debt. Normally, the ages of 55 and 64 who carry credit card debts may spend 31% of their paycheck towards paying off debt.
High-interest debt like credit card bills can be reduced. If you also have a high balance on a credit card, try switching the entire balance into a 0% balance transfer card and pay off without paying the interest. If possible you can take out a personal loan to pay off multiple debts.
b) Reduce unnecessary expenses
Unsubscribe all the useless services like magazines, gym, extra phone lines or any other service. Keep tracking your recurring expenses.
c) Reconsider the housing choice
You might need to lower your housing costs. Check out if you can move to a smaller house or a less expensive neighborhood to reduce your mortgage payments.
d) Check out your health care costs
Talk to a professional and review your healthcare cost. The most important thing in this sector is to compare between multiple healthcare providers. So, shop for multiple healthcare providers and get quotes. Compare coverage and other benefits before opting a service. Make sure you are getting the best service at cheaper prices.
e) Update insurance coverage
Ask your insurance provider about multiple new options. Compare the premium, benefits, and coverage and choose the best insurance with maximum coverage.
Step 3: Increase Your Income
If you want to increase your income, you have few options onboard:
a) Apply for government programs
Federal and state governments also offer multiple programs to help retirees such as Medicaid for those with lower income.
b) Carry on working
Delay your retirement as far as possible. perhaps you can work part-time for a few additional years. Learn more about working in retirement. If you are already retired, get a new job.
c) Delay collecting Social Security
The longer you can wait, the higher the benefit amount.
d) Become tax-efficient
Most of your retirement accounts are taxed as ordinary income tax. That's why it's important to consider a Roth IRA or Roth 401(k), for paying taxes upfront.
Retirement planning is a complex task and cannot be ignored. If you are struggling with it and need help, consult a professional financial planner or talk to your family.
Step 4: Reduce Health Care Cost
Lowering your healthcare costs is essential for successful retirement planning.
a) Stay healthy - You should concentrate on living a healthy lifestyle so you can avoid the burden of increasing medical costs. Do proper research and ask your healthcare provider all the questions. You need to visit your doctor every six months. Make sure you also visit your dentist. Cardiovascular disease can be seen in your gums first.
If you regularly perform a check-up, you can easily avoid any major health issues and reduce the cost of healthcare services.
b) Reviewing and considering all your medicare options
A 60 plus person has an estimated median savings of $172,000. On average, those 65 and older spend $3,800 per month; Social Security replaces only about 40% of their working-life income. In 2019, the average monthly Social Security benefit for retired workers is $1,461.
You have to know about Medicare Parts A, B, and D, as well as Medicare Advantage and "Medigap" supplemental insurance plans.
- Part A pays the hospital costs after you meet the deductible.
- Part B is a coverage (optional) for medical expenses and requires an annual premium. Part D is for prescription drug coverage.
- Medicare Advantage plans are all-in-one managed care plans. They provide the services covered under Part A and Part B of Medicare and may also cover other services that are not covered under Parts A and B, including Part D prescription drug coverage.
- Supplemental policies referred to as Medigap policies are offered by private insurance companies to supplement expenses that Medicare Parts A and B do not typically cover.
c) Take advantage of a Health Savings Account (HSA)
It has simple contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses. HSA funds can be used to pay for certain medical premiums, including Medicare premiums and long-term care insurance premiums.
For 2019, the regular HSA contribution limit is $3,500 for individual coverage and $7,000 for family coverage. Those limits apply to both employee and employer contributions combined. One caveat: Those enrolled in Medicare can no longer make new contributions to an HSA.
d) Compare prices from alternative providers
You should contact at least two health care providers offering the coverage you seek and ask what your out-of-pocket costs will be.
Remember that hospitals often charge way more than free-standing labs, radiology centers or ambulatory surgery centers.
e) If you have a high deductible health plan, ask for a discounted “cash price
Before getting the medical service, find out if you can get a discounted price with insurance in case you want to make cash payment. Many healthcare providers offer you good discounts, as much as 50%, if you have a High Deductible Health Plan.
f) Avoid “surprise balance bills” by requesting a written Estimate of Cost
Talk to your surgeon or health plan before outpatient surgery and get the written cost. The estimated cost should be your anticipated out-of-pocket responsibility, plus reimbursement to anesthesiologists, assistant surgeons and other ancillary providers who may not participate with your health plan
Step 5: Volunteer in Retirement
There are multiple volunteer opportunities for retirees available in society. But finding the right role for you is not always easy. Volunteering not only supports the company you’re serving but also provides multiple benefits to you also, including keeping yourself physically and mentally fit.
Apart from that it’ll also reduce social isolation and creates a stronger sense of community.
Consider these tips to avoid mistakes and make the most of your service time as a senior volunteer:
- Think and know the reason volunteering
Identify what you want to achieve from the volunteering. Focusing your motivation will help you find the most suitable opportunities. Before signing on to any volunteer contract, make sure that the work must satisfy your needs first.
- Contact a volunteer agency
Volunteer agencies know the types of available positions and the skills you need to build to get that work. Volunteer agency coordinators will discuss with you about your skills, background, and match you with open positions. They also guide you through the process.
- Find a local area to work
Transportation costs and logistics will become cheaper if you volunteer locally. Your job roles may also tend to be more friendly and fulfilling if it’s around the corner from your home.
- Understand the rules and process
You need to read all the terms and conditions before joining the work. Some volunteer jobs require a background or driving record check. Some may also require hard training for several hours before hitting the work platform. So, it is better to know your job profile and all the rules and regulations.
- Don’t commit beyond your limitation
Volunteering for any company is a job, even if it looks like a happy time spending for you. So, don’t make any big commitments over there. Remember, you are a retired person, so you may face health hazards at any point in time. Start with a small commitment, perhaps one day work per week, and then gradually add more time.
- Don't be afraid to say 'no'
Don’t be afraid to open up to your volunteer manager. Speak up about your frustrations or issues you are facing. A volunteer coordinator will find a suitable role within the same project. But you must be fully dedicated to your volunteering work. And don’t let a negative volunteer experience bother you from volunteering freely.
Retirement planning is crucial because it determines the factor of satisfying retirement lifestyle. Financial planning is crucial because it recognizes the sources of income and expenses and establishes your budget after retirement, based on your personal finance planning.