There are many things to look forward to when you retire — you no longer have to clock in for your 9-to-5 job, put on your office work suit, or even set up your alarm to wake up every day for work. Instead, you can dedicate all your time to things that make you happy, whether that is a hobby or traveling, or just spending time with your spouse and grandchildren. It sounds like bliss. However, not working also means that there is no longer a paycheck waiting for you every month. But with good planning and preparation, money doesn’t have to be an issue when the time comes for you to retire. Preparing well for retirement involves sound financial knowledge and making the right decisions as early as today. Here is a guide on how to turn your retirement into the best years of your life.
Save for Retirement
Now that you are planning for your retirement, one of the first things you should do is determine a good savings plan. If you don’t already have savings at this point in your life, it’s highly recommended to start some type of savings account. Although it is best to start early to benefit from compounding interest, it is also never too late to save for retirement. A good amount to set aside would be around 10% to 15% of your income. However, this suggestion is ideal—it’s not a hard and fast rule. You can set aside a retirement fund with whatever amount you feel comfortable with. Your retirement fund should be separate from all your other savings to ensure that you have enough set aside for retirement alone.
For example, becoming a homeowner can actually help you save for retirement if your home builds its equity over time. When you downsize, you may not be able to realize that equity for your retirement.
Understand Costs in Retirement
You will want to understand your fixed costs when saving for retirement. First, understand your rent or mortgage (if applicable), utilities, etc. You will also want to understand your costs that are subject to inflation. For example, a 1 Ib of strawberries might to $3.99 per pound today, but it could be $5.99 per pound in 20 years.
Second, you should understand whether you will have new costs in bankruptcy. For example, you may purchase a pet dog or you may take up a new hobby that has costs.
Know Your Company’s Retirement Plan
Before you retire, make sure that you are familiar with your company’s pension plan. Most companies that operate for profit have a pension plan in place for retired employees. Know the extent of its coverage so that you can make informed decisions about your retirement, especially in managing your finances. Most of the time, people find they need more than a company pension plan to ensure a comfortable retirement. Look at other income streams once you retire, and also look at the many financial products available to help you reach your retirement financial goals.
Plan Your Investments
With all the financial products available, it’s highly encouraged that you invest in a financial product that can contribute to your retirement goals. For example, an annuity is a financial product that can guarantee you a steady income stream throughout your retirement. With the technology available, buying annuities online can now be done with the click of a button.
What is an annuity?
An annuity is a contract between a company and an individual that guarantees a fixed income stream for the individual, either for a set period or for life. There are different types of annuities, so talk to your insurance provider to inform you of what options can work best for you as a retiree.
What is a fixed annuity?
A fixed annuity promises the policyholder a fixed amount plus a guaranteed minimum interest rate to be received every month for the rest of the policyholder’s lifetime or just for a set amount of time. This type of annuity is the most common among retirees and is a no-fuss option for those who want a secure income stream even after retirement.
What is a variable annuity?
Variable annuities are more volatile than fixed annuities because the performance of mutual funds determines payouts. They invest the premiums made on a variable annuity in mutual funds, depending on how well the mutual funds play out on the market. Variable annuities are an excellent product to invest in if you have other sources of income during your retirement since the revenue you get monthly varies, and it is difficult to predict how well the mutual funds will perform in the market.
What is an indexed annuity?
An indexed annuity is a fixed annuity with an interest rate dependent on a specific stock market index such as the S&P 500. If the index is positive, they add a variable rate of interest to your contract value. Thus, the performance of an indexed annuity wholly depends on the performance of the market. Some people refer to an indexed annuity as a cross between a variable and fixed annuity.
How do annuities work?
To avail themselves of the benefits of an annuity, the policyholder must make payments to the company either in a lump sum or in periodic payments over a set period. This period wherein payments are being made is called the accumulation phase. After payments have been made, the policyholder receives payments from the company at the agreed-upon time. This period of payout is called the annuitization phase. Many people invest in annuities to ensure that they do not outlive their savings during their retirement.