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Retirement Planning 101 for 2021

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It is never too early to begin planning for your retirement. After all, it is a long-term project to ensure financial security for you, your spouse, and children.

In whatever stage you are in life, the new year is the perfect time to reevaluate your current retirement plans, or begin saving. Here is a guide to help you make the best retirement plans for your lifestyle.

Timeline for Retirement Preps

It is first good to remember that no two plans will look exactly alike. Each one should be tailor-fit to a person’s income, expenses, and life goals. Start by writing these down to have a clear picture of what you are working towards.

In your 20s and 30s…

Begin with a budget. Map out the amount needed for daily needs and other necessities, then from there, take note of the areas in which you can cut down expenses and set aside at least 10% of income for savings.

One way to invest money while working is by enrolling in a 401(k) Plan through your employer. Eligible employees contribute a set amount that is deducted from their paycheck, which are only taxable upon withdrawal in traditional plans. A Roth 401(k), on the other hand, is taxed for every contribution, with tax-free withdrawals.

Another investment option is an Individual Retirement Account (IRA), which, unlike 401(k) is made through a financial institution. The account gains interest as time goes on, and is also traditionally taxable upon withdrawal. A Roth IRA requires non-tax-deductible contributions, but has tax-free withdrawals.

As you grow in your job, increase your contributions to your retirement plans, and begin buying insurance policies. Having life and health insurance, for example, will alleviate some financial burden from you when you are of age.

Open an emergency fund that will act as a buffer against unexpected events, such as the coronavirus. Don’t be afraid to start small. The important thing is to work your way up from there.

In your 40s…

This is the time to maximize your contributions to ongoing retirement plans, and consider making investments outside of them. Popular options are investments in stocks and mutual funds.

During this season, pay off student loans, credit card dues, and other debt you may have incurred. Make eliminating debt your goal.

It is wise to start making a will that will cover how your assets will be distributed after your death. This will guarantee that your properties and money will go to their rightful heirs.

In your 50s…

This is the last stretch of employment before retirement. In this last decade of full-time work, you ideally only need to review your existing portfolio and catch up or invest more where needed.

By this time, you should also already have a will in place. If you don’t have health insurance yet, it is of utmost importance that you get one now.

Making Retirement Income

retirement

Retiring doesn’t mean that you have to stop earning entirely. Here are a few ways to gain some income in retirement, outside of your retirement plans.

  • Part-time Work. Before going into retirement, discuss the possibility of consulting or freelance gigs in the future with your employer. It doesn’t have to be limited to this, however.Do you have any hobbies or skills that you will be able to monetize? Explore these possibilities for a part-time business venture.
  • Reverse Mortgages let you borrow money against the value of your home. You can decide to receive the amount as a lump sum, in monthly payments, or line of credit.Taking out reverse mortgages is a good consideration for homeowners over 60 who are looking for extra income. Lower home loan rates today may also make this ideal for retirees.
  • High-Yield Savings are low-risk investments in which you deposit money into an account that has a high interest rate. A high-yield savings account is a great place to store life savings and emergency funds because they earn a modest amount while being stored.Note that the Federal Deposit Insurance Corporation, or FDIC, insures savings up to $250,000. This safeguards your savings in case of collapse.

Responding to Times of Crisis

Just like the suddenness of the COVID-19 pandemic, plans often get interrupted. In events where it’s necessary to cut back, go back to your budget and see where it is possible.

Don’t touch your savings unless necessary, and consider putting money in more low-risk investments that will not be rocked by economic crises.

Whatever the situation, but especially in unpredictable times, be careful to minimize spending where possible and maintain a steady source of income.

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