Statistics show that the average life expectancy in 2020 was 72.3 years. You can live longer and remain healthy into your golden age. On the other hand, the bad news is that most people aren’t fully prepared for retirement, particularly regarding their financial health.
Developing a game plan is essential if you don’t want to adjust your lifestyle to accommodate a lower financial income during your senior years. You can talk to financial advisors or seek expert help to explore your options. In this article, you’ll learn a few tips on securing a financially-healthy lifestyle during retirement.
1. Consider Your Time Horizon
First, it’s best to determine how much time you have before hitting your senior years. You can set your retirement at any age. While there are no set rules, you can use the average life expectancy age to prepare for retirement.
For instance, if you want to retire at 65, saving and preparing for your retirement expenses for five to ten years is wise. If you’re 35, you still have 30 years to prepare for retirement. You may change your mind and decide to retire earlier. Regardless, you can adopt a flexible planning option based on your preferences.
2. Compute Your Retirement Income And Expenses
After determining the years to prepare, you must compute how much money you need to retire comfortably. Estimate your retirement income from general sources, including Social Security and employer pensions. The rest will come from your investment or savings account, loan finance for pensioners, and other income earned during retirement.
Compare that to your estimated expenses during retirement. Please note that some expenses, such as healthcare, can be higher during senior years. On the other hand, other priorities, like commuting and clothing expenses, may decline. Consider including the inflation rate throughout the years in your calculations.
You must have a balanced retirement income-to-expense ratio for healthy finances throughout your senior years. To determine if it’s enough, consider following the 4% rule. It means you must spend at least 4% of your financial savings annually during retirement.
Imagine this: if you have a total of USD$3 million in retirement assets, you can spend up to USD$120,000 annually when you retire. Is that enough to support the lifestyle you want during retirement?
3. Choose A Retirement Savings Vehicle
Depending on your location, various retirement savings vehicles are available to you. Consider taking advantage of these retirement accounts and plans to maximize your savings. You can also optimize the contributions allowed in these retirement accounts.
When nearing your desired retirement age, consolidate these accounts into one vehicle to simplify your investment and better picture your total retirement assets. Don’t forget to check any accounts you may have with former employers. Also, you must check for consolidation and distribution options when changing companies.
4. Manage Your Present Financial Situation
Evaluating your current financial situation can help you plan for your retirement while making it easier to understand how to manage your finances. You can calculate your net worth and organize your current spending and income. While you can do this manually, you can also use financial software to help facilitate the process.
After evaluating your current financial situation, you should stay on top of your current finances. First off, you need to take care of liabilities. Doing so can reduce financial burdens during retirement.
Start paying debt with higher interest rates, such as credit cards and auto or personal loans. They may take a chunk of your savings, but you’ll reduce your payables. You can also pay your mortgage without taking cash from your retirement accounts.
Next, you need to increase your income. Easier said than done, right? You can save more by minimizing your expenses or taking a side hustle. With the extra income, you can start investing your money and develop a diversified portfolio for a more secure financial life in your golden years.
5. Review Your Plan Regularly
It’s normal for plans and ideas to change over time. Plus, unexpected situations in life may require you to adjust your financial course. So, review your retirement plan whenever significant milestones or situations occur or at least every year or two. You may revise it as necessary to accommodate your current financial goals.
Takeaway
It’s never too late or too early to prepare for retirement. Even if you’re decades from retiring or nearing your golden years, developing a financial plan right now can help. You can build a nest egg to live a comfortable lifestyle during your senior years.
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