17 financial planning tips for retirement


Retirement has traditionally been a time to unwind, with a lot of hard work leading up to the big day. But it takes careful strategy – and hard work of a different kind – to arrive in style and safety.

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If you’re ahead of the game or on track, good for you (and your future). But even if you’re late, you can still prepare for retirement success. Helping with financial planning and an understanding of the financial planning process is a big part of the picture, along with a basic understanding of retirement planning.

Here are 17 financial planning tips to get your retirement strategy back on track.

Retirement planning guide

1. Maximize your 401 (k).

You can go further in 2021 because the IRS has increased the maximum contribution level to $ 19,500, from $ 19,000 in 2020. If you have an Individual Retirement Account (IRA), the annual maximum is only of $ 6,000 – but you can make extra earnings. “catch-up” contributions of $ 1,000 per year if you are 50 and over.

Related: 35 mistakes people make in retirement

2. Make sure you get your employer correspondence.

No one would refuse the free money in theory. But that’s exactly what most people do when they drop the ball on matching retirement funds when an employer offers them. “A typical situation would be 50% of employee contributions for the first 6 percent of salary an employee contributes,” said Dirk Quayle, founder, president and board member of NextCapital in Chicago. So if you haven’t signed up for matching funds, then … Do it. Now.

3. Consider seeking professional help with financial planning.

In a 2014 Charles Schwab survey, 70% of 401 (k) participants said they would be very or extremely confident in making 401 (k) investment decisions with professional help. This compares to only 39% who felt the same confidence when making decisions on their own.

4. Consider the investment costs.

The fees can eat into your attempts to build up retirement savings. Typical investment fees represent about 40 percent of annual returns, Forbes estimates. But by making small changes, like switching to an index fund over an actively managed fund, you can reduce the fees to just 15%. Reinvest the savings and you’ll end up with thousands more in retirement. Let’s say you can save $ 600 in fees this year. If you reinvest that initial $ 600 and the same amount saved each year for a total of 10 years, you will end up with $ 7,684, assuming an annual interest rate of only 3% on your investment. Use your own numbers to do a calculation at investor.gov.

5. Pay off the debt.

Ask yourself if you are paying off your high interest debt too slowly and losing money in the process, because you want the power of compound growth to work for, not against you. If you pay $ 400 a month on a credit card balance of just $ 15,000 with an APR of 19.99% – which is not uncommon for many cards these days – it will take you five years and you pay a total of $ 8,728 in interest on top of the principal. By the way: that’s a huge 57% profit for the card company.

6. Know your retirement number.

Are you hoping to retire with $ 1 million? Consider that in 2045, you will need $ 2.4 million to have the same purchasing power as $ 1 million today, assuming 3% annual inflation.

7. Increase your cash reserves.

Placing investments and cash reserves in separate compartments means that you will have money to weather the down cycles of the stock markets. Instead of selling investments at a loss before retirement, you can tap into cash reserves and weather the market downturn.

Read: 30 biggest threats to your retirement

8. Make sure you have the right insurance coverage.

If you want your insurance payments to contribute to your retirement assets, whole life insurance accumulates a cash value that you can withdraw or borrow. Term life insurance is much cheaper per month, leaving you with more money to invest, but once the coverage period ends, you don’t get anything back.

9. Focus on asset allocation.

If you’re trying to choose between, say, target date funds, bonds, and more aggressive stock picks, consider a mix rather than an absolute choice. “Diversifying across asset classes as well as within asset classes is a smart way to go,” says Jimmy Lee, Founder and CEO of The Wealth Consulting Group in Las Vegas. “While it doesn’t ensure a profit or protect against a loss in a declining market, diversification offers the potential for a smoother ride. “

10. Know your Social Security benefits.

The Federal Government’s Social Security website contains links to a calculator that helps you estimate your retirement benefits. You will need to provide personal information to obtain these numbers, including your nine-digit number.

11. Use Social Security to extend your 401 (k) contributions.

As you move into retirement, you may start receiving benefits at “retirement age” from the government (between 66 and 67, depending on year of birth). But if you are still working, you can live off these benefits and use more of your salary to invest in your business’s 401 (k) and give it more time to grow.

12. Don’t siphon off your retirement accounts.

It’s tempting to view retirement accounts as a source of excess cash, but leave them as they are, unless it is an absolute emergency. The IRS has severe tax penalties if you opt out before you retire: an additional 10% tax on certain early distributions of certain retirement plans.

13. Talk to successful retirees.

While this should never be a substitute for professional advice, talking to those who have retired well can give you some great ideas for reflection. In particular, those who have turned modest means into a big nest egg might have some solid advice.

14. Turn discretionary spending into investment.

Those who delay investing in retirement too often confuse needs with wants. “Cell phone bills, cable TV packages and automatic services of all kinds are gradually becoming necessities, and the potential investor never jumps,” said Stig Nybo, president of US retirement strategy for Transamerica Retirement Solutions in San Francisco.

15. Get a second (or third) opinion.

Just as you would see another doctor to confirm a diagnosis, it’s often a good idea to compare recommendations from one financial planner to another. When you see an overlap in agreements, chances are you’ve hit a critical part of your retirement plan.

Read: Costco and 23 other companies with surprisingly good 401 (k) plans

16. Start early.

Millennials who have the vision to start retirement accounts early will reap the rewards later. A 25-year-old who spends $ 4,000 a year for just 10 years (with an annual rate of return of 10%) will accumulate more than $ 883,000 by the age of 60, according to US News. But you can still be successful if you’re 35 and contribute $ 4,000 a year until you’re 60. On this path, you will accumulate approximately $ 480,000.

17. Don’t think it’s too late.

Even at age 55, retirement security is possible. Dave Yeske, Certified Financial Planner and Managing Director of wealth management firm Yeske Buie, calculates that if you are 55 and can set aside $ 14,400 a year and defer retirement to 67, you will accumulate 295,000 $ just during that short period. , assuming an annual return of 8%.

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