Maintaining financial independence in retirement requires comprehensive planning and commitment. And of course, money. But with the rising cost of living and inflation touching the sky, it’s hard to know where to start.
That said, there are numerous tips and strategies you can follow to retire with confidence. Here’s a closer look:
Rethink the Traditional Retirement Timeline
Why is early retirement planning such an odd scenario for some people?
Look at it this way: For decades, people waited till their 60s to even consider retiring. After turning 62, they would cut a Happy Retirement cake and step into the last chapter of their lives supported by Social Security benefits and a pension.
This scenario is not too practical these days. Most people don’t have a pension to rely on, which is why they need to build retirement savings from scratch.
Scratching the traditional retirement age and starting planning as early as possible is important. Starting early gives you ample time to plan and even leave room for mistakes.
Even if you can’t actively save for retirement in your early 30s, try to pay off loans and debts as much as possible. Start small but stick to your goals.
Envision Your Ideal Retirement Lifestyle
Retirement planning is difficult unless you know exactly what you want. So, think about how you want to enjoy your days. Do you see yourself travelling, volunteering, relaxing, or taking up official grandparent duties?
Envisioning an ideal retirement lifestyle helps determine how much money you need to save for it. Having a realistic number in mind can be motivating.
Availing retirement planning services can also give you a clear road map to support your desired retirement lifestyle.
Go Beyond the Employer-Sponsored 401(k)
Traditional 401(k)s are quite beneficial. The contributions are taken directly from your paycheck, so your tax numbers go down. You can start contributing as early as you’d like. That said, there are numerous other tax-advantaged ways to save for retirement.
The most popular option is a Roth IRA. It is a type of individual retirement account (IRA) that allows contributors to save and grow after-tax dollars. You don’t have to pay an upfront tax deduction if you’re 59½ years old and have owned this or another IRA for at least five years.
Look Into Withdrawal Strategies
Having a well-thought-out withdrawal strategy for your hard-earned retirement savings can make a world of difference. Reputable retirement planning firms can help you determine a withdrawal strategy tailored to your goals.
For instance, a tax-efficient withdrawal strategy might involve the following order:
Taxable (non-retirement) accounts – these accounts impose fewer distribution penalties, boosting your savings.
Tax-deferred retirement accounts – these accounts trigger ordinary income taxes. Examples include pre-tax IRAs or 401(k)s.
Tax-exempt accounts – they allow tax-free savings to grow for as long as possible. Examples include Roth IRAs.
Having a sustainable withdrawal strategy will ensure peace of mind and boost your retirement income.
