How to get ready for retirement

Most people would prefer not to work forever, but the expenses needed to sustain our livelihood will not magically disappear once we retire. A retirement plan is a must!

Published on 2023-06-15

Despite loving what you do and envisioning staying active for a long time, retirement is something to look forward to. However, it can be a scary prospect for many people, but it does not have to be that way. By planning, you can be well on your way to a comfortable retirement. Whether you are nearing retirement age or just getting started with your career, these tips will be useful.

Do not stall

Start saving as early as possible. The earlier you start saving for retirement, the better. Even small contributions can add up over time. Concerning retirement, there is such a thing as starting too late, but do not get discouraged, anything you do to save money for your future will help. Contrary to popular belief, saving for your retirement is more realistic when you are younger. The reason for this is when you are young, your expenses are much lower and can be adjusted more easily. If you do not have children or a mortgage, for instance, saving a bigger chunk of your wage is doable.

Get your finances in order

The first thing you need to do is assess when you will be able to retire. Since retirement requires planning, you need to have the most amount of information about your financial status. Look at your active income, your expenses, and how much you can manage to save over the years to figure out when to stop relying on your active income. Remember that thanks to a magical thing called compound interest, even relatively small amounts of money can allow you to retire if you give it enough time to grow.

Decide where your passive income will derive from once you retire

For most people, the expenses for their livelihood during retirement will come from savings and personal investment accounts. Maybe you have been contributing to Individual Retirement Accounts or your 401(k). If this is the case, you have been setting aside money that will cover your expenses when you are no longer working for a monthly wage. You could also rely on Social Security, although there is no certainty governments will be able to affront social security needs in the future. Moreover, Social Security will probably only cover a fraction of your needs.

Plan for multiple sources of income

Ideally, you do not want your passive income to come from one source only. The problem with this is that if you rely solely on one source for your income, unforeseen issues might arise which will not secure your expenses in the future. Also, some forms of passive income are more reliable than others, so diversifying your income would be wise.

A retirement fund is only as strong as your emergency fund

Planning for the foreseeable future is hard enough. Now, think how hard it is to think of all possible contingencies. If you do not plan both for retirement and for any unforeseen emergencies, your retirement fund will become your emergency fund, and you will not be able to secure your future. Hence, the first thing you should do is create a contingency fund that covers the expenses for 3 to 6 months. This fund should be liquid, meaning you can access the money easily without having to sell stock or wait for the fixed term to end.

Contribute to a retirement account

Now that you have taken these first steps, take advantage of retirement accounts like 401(k)s or IRAs. These accounts offer tax advantages and can help you reach your retirement goals faster. For instance, 401(k)s are sponsored by your employer and include tax deductions.

Pay off your high-interest debt

Debts can create a big dent in your finances that you cannot match with the average investments. Before creating an investment account for your future retirement, pay your debts. If it is within your means, you should opt for paying the biggest debt with the highest interest first and then move down the list and slowly pay everything off.

Make catch-up contributions

If you are over 50, you can make catch-up contributions to your retirement accounts. This can help you make up for lost time if you haven't been able to save as much as you'd like. Revise your budget and see where you can make adjustments. Another way to catch up with your retirement fund is to downsize. A smaller home will demand less maintenance and expenses and is more likely to fit your lifestyle as a retiree.

Retirement planning does not have to be overwhelming or scary. What we do suggest is that it starts as soon as possible. To ensure a comfortable and enjoyable retirement, remember to start saving early, set realistic goals, and review your plan regularly.

Looking to learn more smart ways to save money? Read all about it here. Or better yet