According to the Employee Benefit Research Institute’s survey in 2021, 34% of workers and 23% of retirees reported feeling less confident in their ability to afford a comfortable retirement. This was due to the economic impacts of the pandemic.
The National Institute on Retirement Security also found that the average working household in the US has very little retirement savings. Their report states that the median retirement family finances are $2,500 for all working-age individuals and $14,500 for workers near retirement.
Additionally, 62% of working workers aged 55-64 have retirement savings that are less than their annual income, which is insufficient to maintain their standard of living in retirement.
These statistics highlight the importance of prioritizing retirement savings in your financial planning and starting to save as early as possible.
5 Financial Matters You Need to Know Before You Reach Retirement
By doing responsible financial planning, you can help ensure you are well-prepared for a secure retirement. Here are the five financial matters you need to know before you retire.
1. Retirement savings
Retirement savings is a critical component of retirement planning, and starting as early as possible is essential. If you start saving early in your career, your investments have more time to grow.
A key factor to consider when planning your retirement savings is the lifestyle you envision for yourself during retirement. This and your financial obligations will determine how much you need to save.
Many financial experts suggest setting aside at least 15% of your income each year for retirement. Clever states in their 2023 report that the recommended amount for retirement savings is around $556,400. Regularly reviewing and adjusting your retirement savings plan as your circumstances change can help you stay on track to achieve your retirement goals.
2. Investment strategy
A diverse investment portfolio can help you reach your goals faster. It’s essential to consider your risk tolerance, future lifestyle, and timeline when determining your investment strategy. There are numerous investment options you can consider: stocks, bonds, and mutual funds are a few examples.
If you have a longer time horizon before retirement, you may consider investing more aggressively in stocks with higher potential returns. The caveat is that they also carry more risk. Alternatively, if you have a shorter time horizon, you may want to focus on more conservative investments, such as bonds or cash, to preserve your capital.
Each investment option has its benefits and drawbacks; understanding them is essential before making investment decisions. Seek the help of a financial advisor or do your research to ensure you make informed decisions that align with your investment goals.
3. Retirement income
It’s crucial to have a scheme in place for generating retirement income. Social Security benefits may not be sufficient to encompass all your expenses. You may need to consider other sources of retirement income, such as a pension, annuity, or rental income.
Pensions are becoming less common, but if your employer provides one, it can be a significant income source. An annuity is another guaranteed source you can purchase from a financial institution or an insurance company. It can provide a fixed or variable income stream for life or a set number of years. You can also get revenue if you rent out properties you own.
A diversified income stream ensures you can still earn even if you lose one of your other sources of income.
4. Healthcare costs
To retire with health and wealth, you need to investigate healthcare costs. They can be high during retirement, especially if you have a chronic medical condition. Medicare is the primary insurance program for retirees but does not cover all healthcare expenses.
For example, it does not cover dental, vision, or hearing services, and there are co-pays, deductibles, and other out-of-pocket costs for covered services. They also don’t cover long-term care services, such as nursing homes, which can be a significant expense for some retirees.
To plan for healthcare costs, consider purchasing supplemental insurance. These include Medigap and Medicare Advantage plans, which offer additional benefits beyond those provided by original Medicare, such as dental and vision coverage. You can also consider setting aside funds in a health savings account (HSA).
5. Debt management
High debt levels can impede your ability to save for retirement and generate income during retirement. It’s essential to reduce and manage your debt before retirement. One way to manage debt is through consolidation. Consolidating high-interest debts, such as credit card balances or personal loans, can help you pay off debts faster and save money on interest payments.
Another option is to seek the advice of a financial advisor who can help you flesh out a debt repayment plan. They can guide you on prioritizing debts, negotiating with creditors, and finding the most efficient ways to pay off your debts.
Managing your debts effectively allows you to reduce your financial obligations and free up more money for retirement savings. It will help you achieve your goals and provide financial stability.
Remember that debt management is an ongoing process and requires discipline and commitment. Consciously paying off debts and avoiding accumulating new ones can significantly improve your financial outlook in your golden years.
Planning is Everything
Planning is crucial for achieving financial stability in retirement.
A diverse investment portfolio can help you achieve your goal, and generating retirement income from various sources can ensure you can pay any expenses. It’s also essential to settle debts and consider healthcare costs, especially if you have existing medical conditions.
If you’re having trouble knowing where to start, how to manage your savings, or what investment plans to take, you can work with a financial advisor. They can turn you towards opportunities to grow wealth even if you already have a portfolio.
By taking the time to assess your financial situation, set goals, and develop a plan, you can set yourself up for success. Take advantage of available resources, seek advice from a financial advisor, and regularly reassess and adjust your strategy. Through these methods, you can slowly watch your savings grow and know you can look forward to a comfortable future.