If you suspect you haven't saved enough, it's time for strategic retirement planning.
Today, Americans are living longer than ever, and that means longer retirements than previous generations. According to the U.S. Department of Labor, the average person spends 20 years in retirement others say 30 years or longer.
Many financial advisers suggest you'll need 70 to 80% of your annual pre-retirement income to maintain your standard of living. Here are six steps to help get you on the right path.
1. Decide how you want your retirement to look. Whether you're planning to travel extensively or kick back by a lake, your income will need to support your lifestyle. Once you decide how you'd prefer to spend your retirement, you can map out a strategy that could help get you there.
2. Assess your finances. Take a realistic look at your current financial status. Look at how much you've saved, your debt, the amount of life insurance you have, and what you have available in emergency funds. Talk with a financial professional.
3. Increase savings. It's never too early or too late to add to your savings. If you have plenty of time before retirement, save as much as you can to take advantage of interest compounding. If retirement is near, look into catch-up contributions, which can help improve your financial picture. Even small gains matter: increasing your retirement contribution by 1% to 2% each year adds up over time. Evaluate your savings progress with a retirement calculator offered by most financial professionals.
4. Knock out debt. Those in the financial industry recommend keeping debt level manageable: no more than 35% of your income. Getting rid of high-interest debt such as credit card balances is always a good idea. and before you retire, you'll want to eliminate as much debt as possible so that you aren't servicing it with your savings. Consider paying off your home before you stop working, too.
5. Review and revise your plan every year. Review with a financial professional every year to see if you're still on track. It's also a good idea to review your insurance coverage periodically, and anytime your life changes, such as when you marry of have a baby. As you near retirement, you might decide to shift some of your savings to income-producing investments, such as annuities. Or, to keep your nest egg intact, your plan may be to continue working a few years more into retirement.
6. Share your plan. If you are married, living with a life partner or have children, sharing your retirement plan is important. Your spouse or life partner needs to know what to expect in retirement and a shared vision will make it easier to obtain. We all want to do as much as possible for our children, but there will be a point in time when we are no longer the caregivers. Let your children know your plan, so they can make decisions about their own future and how they may transform into caregivers.
Bob Hollick is a State Farm Insurance agent based in Washington.
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