Retirement Planning Tips

Do you need retirement planning tips? You have come to the right place. Your retirement life could well be longer than your working life.

Retirement should be looked at as a career change - or - a new beginning.

It's well worth some serious planning to make your retirement life the best it can be for you. You are responsible for making that happen.

The key retirement planning advice I can give is to start your planning now. Whatever your age, it's never too soon to start planning. You will see why later on this page. One thing to remember is that you will only benefit from retirement planning tips when you implement them.

Importance of Savings

The first of my retirement planning tips is - the sooner you start saving for retirement, the better off you will be. Consider this example.

If you are 25 years old now and start saving $25 per week for retirement, and you can get a 5% return on your money, and never take any money out, when you retire at 65 years old you will have about $165,000.

You will have saved $52,000 of your own hard earned money, but would have accumulated an additional $113,000 of interest. So, two-thirds of the $165,000 is not money out of your pocket.

If you wait until you are 35 years old before you start saving the $25 per week, and get a 5% return on your money, you will have about $91,000 when you retire at 65 years old.

You will have saved $39,000 of your own hard earned money, but would have accumulated an additional $52,000 of interest.

If you wait until you are 45 years old before you start saving, you will have about $45,000 at 65 years old.

You will have saved $26,000 of your own hard earned money, but would have accumulated an additional $19,000 of interest.

If you really procrastinate and don't start saving until your are 55 years old, you will have $17,000 in your retirement savings account.

You will have saved $13,000 of your own hard earned money, but would have accumulated an additional $4,000 of interest. Only one-fourth of the $17,000 is not money out of your pocket.

Here's another way to look at it. If your goal is to have $165,000 saved by the time you are 65 years old, and you get a 5% return on your money, you would need to save:

  • $25 per week starting at age 25 - or $52,000 of your own money
  • $48 per week starting at age 35 - or $75,000 of your own money
  • $96 per week starting at age 45 - or $100,000 of your own money
  • $252 per week starting at age 55 - or $131,000 of your own money

In this example, you are seeing the impact of compound interest.

For another one of my retirement planning tips, refer to my article on Early Retirement to see an example of how much money you will need to generate the income you will need in retirement.

Compound Interest

Using compound interest is one of my retirement planning tips as it lets your money earn money for you.

According to Wikipedia, the definition of compound interest is the concept of adding accumulated interest back to the principal so that interest is earned on interest from that moment on.

Albert Einstein called it "the greatest mathematical discovery of all time".

The earlier you start saving or investing, the more time there is for the power of compounding to take affect.

Develop the discipline and patience to consistently save over time. If you can save $50 per month and get 5% interest, you will have $76,000 at the end of 40 years - which would be $24,000 of your own money and $52,000 of compounded interest.

If you are able to increase your interest or return on your money to 10%, you will have $292,000 at the end of 40 years - which would still be only $24,000 of your own money, but $268,000 of compounded interest.

If you can increase the amount you save to $100 per month, you will have $152,000 at the end of 40 years - which would be $48,000 of your own money, and $104,000 of compounded interest.

Now, if your could do both - increase the amount you save to $100 per month and increase your interest or return to 10%, you will have $584,000 at the end of 40 years - which would still be $48,000 of your own money, but $536,000 of compounded interest.

Practice Retiring

The next of my retirement planning tips is to take a few months off of work - ask for a leave, or sabbatical - and pretend you are retired.

Be sure you have enough money saved to financially do this.

Do what you would like to do in retirement - travel, relax, exercise, start a business. If you find that you like it, you may be ready to retire.

You will experience spending more hours every day with your spouse and family. Can you handle that after all those years of going to your daily job?

Practice living on the amount of income you expect to have in retirement. Do you need to change your plan to produce more income?

Only you can plan the retirement lifestyle you want to enjoy.

Social Security

Another one of my retirement planning tips is to verify your Social Security statement every year. This statement from the Social Security Administration that shows what your annual earned income has been since you joined the workforce.

The statement also shows the benefits for which you are eligible.

Remember that the benefits are based upon your earned income that was subject to social security taxes. You need to confirm that the reported earned income on their statement agrees with your w-2 statements from each year. After you have checked the history back to the beginning, it is a good habit to check this every year when you get the statement.

Report any discrepancies, including supporting documentation. Then follow up to be sure the changes are made properly.

You can't depend on your Social Security benefit to fully fund your retirement income needs.

It is probably closer to the minimum amount you would need to just stay alive.

Insurance

Another one of my retirement planning tips relates to your insurance coverage and costs.

After you are no longer going to work every day, the cost of your automobile insurance premium could go down. You can choose not to drive when the weather is bad, for example. Be sure to contact your agent once your retire.

After you retire, your Home Owner's insurance premium could also be reduced. Check with your agent on this also.

You may want to consider Long Term Care Insurance. This insurance generally pays a daily benefit for home care, assisted living, and/or nursing home.

You may need this type of insurance as you get older, however, the earlier you get it, the lower the premiums will be. Also, you are healthier when you are younger, so you will be approved more easily.

Be sure to discuss Long Term Care Insurance with your financial advisor if you currently do not have this insurance.

Beneficiaries

This is one of my retirement planning tips that is very important. Review and probably revise beneficiaries wherever they are listed on your documents.

There are beneficiaries on life insurance policies, pension plans, etc. There are rules to be followed for both of these. You should probably do this in conjunction with your estate planning, which we will talk about on another page of this website.

Debt Reduction and Income

Your income goes a lot farther when you have no, or very little, debt.

Before you retire, if at all possible, pay off your mortgage, your car, and your credit cards.

You may also want to make major purchases before retiring, such as, new appliances, home renovations, or maybe a new residence. Be sure not to incur more debt as you enter retirement.

In your retirement planning process, maybe you should choose a secondary career in your mid fifties.

That would enable you to work longer to help supplement your retirement income.

That would also give you more options for generating income after you retire.

Summary

Retirement reminds us all of our mortality. You will need to do some serious estate planning.

You will want to find and keep a competent financial advisor that can provide consultant services for you.

These retirement planning tips are useful only if they are followed. I hope they have been helpful to you. Check out the other pages on this website for more information about planning for retirement.


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