How to Be Financially Prepared for Your Retirement

Having no regular income after retirement can be a scary thought. After working hard to achieve your dreams and ambitions, you should be able to enjoy your retirement away from the ‘hustle’ and from the thought of going bankrupt the moment you spend some money.

Interestingly, you’re not alone. Roughly 50% of Americans struggle with saving for retirement. Good retirement planning can help you maintain the lifestyle you’re used to without compromising or holding back.

What is retirement planning?

Retirement planning is the process of identifying the monthly/annual income you need post-retirement and creating a plan to meet your income goals.

It includes estimating future expenses, identifying sources of income to support your expenses, and managing various assets to control risk and reward. It’s a journey to prepare yourself for a life of financial independence after you retire and requires a degree of clarity about your retirement goals. 

Your retirement plan is based on your individual needs and is unique to you. One-size-fits-all plans don’t work as you have to create something that helps you achieve your goals. 

Why is retirement planning important?

After you retire, you may still have dreams you want to fulfill and things you want to do. However, maintaining your lifestyle and the spending patterns you’re used to can be difficult, which is why retirement planning can be useful for multiple reasons:

1. Readiness for emergencies: Healthcare and emergency expenses can increase with age, leading to physical illness and a corresponding increase in stress. In addition, company-paid insurance plans stop being available post-retirement, and medical expenses can significantly impact your retirement funds. Planning in advance for unforeseen situations can prevent sleepless nights due to dwindling savings.

2. Beating inflation: $100 today will not have the same value 10 years later. Due to inflation, $100 in 2012 is equivalent to only $77 today and is likely to decline even further as the years go by. With thorough retirement planning, you can grow your money to keep ahead of inflation. 

3. Maintaining living standards: The expenses you currently have are covered by your regular income. In order to maintain the same lifestyle without compromising post-retirement, you need to plan for income sources that will prevent you from dipping into your retirement funds.

4. Leaving a legacy: Retirement planning can help you create a financial cushion for your family so that their financial needs can be taken care of.

You can set and manage goals that help you maintain your financial freedom.

The earlier you start your retirement planning, the more you will have. For example, $100 invested today at 5% annual interest will grow to $165 in 10 years, and $234 in 20 years. 

Therefore, the longer you stay invested, the higher the sum you are likely to end up with, giving you more comfort and flexibility.

How to plan for your retirement

Based on your current age and career, your approach to retirement planning may vary. For example, is it your wish to travel the world after you retire? Are you trying to save for your child’s college education? Are you considering moving to another country after retirement?

Here are some steps to plan for retirement better:

1. Visualize your future: What do you see yourself doing post-retirement? What kind of lifestyle do you want to live?

Even if you’re relatively young and don’t have much clarity right now, don’t worry. You can start with general goals and begin working towards them. Later, these goals can evolve as you progress.

2. Set a budget: Estimate the kind of money you’ll need to sustain your lifestyle and set a retirement budget. Don’t automatically assume that your expenses will reduce once you’re no longer working. What you save in gas costs might easily be offset by increasing medical expenses. Plan ahead to foresee multiple requirements.

3. Develop a spending strategy: Create ‘buckets’ of expenses and use your budget to create a spending strategy. For example, if you budget your monthly expenses as $3,000, you can further break it down into rent, groceries, fuel, etc. 

4. Consider current and long-term medical needs: Based on your current health and medical needs, estimate your expenses. Of course, not all needs can be accurately estimated and you may need to have some ‘reserve’ funds dedicated to emergency medical requirements.

5. Pay off high-interest debt: High-interest loans such as an outstanding balance on your credit card or personal loans are a major drain on your finances. Pay them off early or replace them with lower-interest alternatives to keep your retirement funds intact.

6. Set automatic transfers: Enforce financial discipline on yourself. Whenever your account is credited with your salary or any other payments, send a percentage of it to a separate retirement account. Keep this account separate and make it reasonably tough for yourself to access it. Force yourself to believe that the money in the retirement account is not available for use at all. Before you know it, your retirement account will have a healthy balance to keep your future secure.

Other provisions that can help

In addition to the steps you can take, there are government-supported programs that can help lead to a more comfortable retirement: 

1. Secure Act 2.0: Expected to become a law soon, the Act significantly improves retirement savings. Some of the key provisions it has are:
   • If you are aged 50 years or above and have not been keeping enough money aside for retirement, you can make ‘catchup contributions’ to your retirement fund. Not only will this give you a better cushion, but it will also make your contributions tax-free and reduce your tax liability.
   • Employers will be allowed to make contributions to younger employees still paying off student debt and unable to contribute to retirement savings.
   • Withdrawing money to deal with situations classified as ‘hardship,’ or for terminally ill patients will be allowed.
   • People can be auto-enrolled in 401(k) plans with contributions increasing annually until they reach the limit of 10%.
2. Whole life insurance: Typically, a term insurance plan will insure you for a certain period with an amount to be paid out in case of death. However, with whole life insurance plans, you can also build a ‘cash value’ by paying extra premiums and generating income. In addition, benefits such as early withdrawal or loans may be permitted to ease any financial difficulties.

3. Retirement Cost of Living Adjustments (COLA): To make sure that your struggles are reduced due to inflation, the government provides for COLA for retirees – 8.7% this year. Social Security benefits will be adjusted to prevent inflation from biting into your retirement savings.
4. Health Savings Accounts (HSAs): If you have a high deductible health plan (HDHP), you may be eligible for a tax-advantaged HSA to cater to medical expenses. Check your eligibility and if your employer also contributes to HSAs. 

Starting the retirement planning process early in your career is beneficial because you have a longer period available to save money. Nevertheless, irrespective of when you start, if you take a structured approach, you can retire with peace of mind. 

How Kashable can help

We live in uncertain times and sometimes it feels like an unexpected expense is just around the corner. Whether it be a health emergency, a natural disaster or a layoff, tough situations seem to be more frequent. Nevertheless, you shouldn’t have to break into your retirement funds to deal with these expenses. 

With Kashable’s easy online sign-up process, you can access loans based on your eligibility for a period of up to 24 months ranging from $250 to $20,000. Our low-cost loans are designed to help you maintain your financial wellness by saving you from the negative consequences of withdrawing from your retirement account.

Conclusion 

Regardless of if you want to retire at the age of 40 or 70, retirement should not be a time for you to worry about your financial security. It should be about relaxing and doing the things you enjoy like taking long vacations, pursuing your passions, and spending time with people you love.

So, start planning well now and know that Kashable is here to support you so you can have a stress-free and well-deserved retirement. 

Note: Choose retirement planning instruments carefully, keeping your financial priorities in mind. Bear in mind that some of the instruments are higher in risk than others, so it might be best to consult a financial advisor to find one that fits your needs best.