You dream about retirement. Whether it’s owning a house on an exotic beach or spending your golden years surrounded by friends and family, you want to retire and live comfortably. This is possible, but it doesn’t just happen. You must plan today for your retirement in the future.
Yes, you’ll qualify to receive Social Security payments when you reach a certain age, but you can’t count on those payments to live comfortably. Maintaining your current lifestyle into retirement requires more funds available later in life when you don’t have a weekly paycheck to help cover life’s necessities and your wants.
Retirement planning is essential to make your dreams for your retirement years come true. Here’s your guide to everything you need to know about retirement planning:
What Is Retirement Planning?
Retirement planning is an activity that helps to define your financial goals for the years after you stop working full time and the steps and decisions you must take to realize them. This includes things such as:
- Managing your assets
- Evaluating your investment risks based on the number of years until retirement
- Identifying the sources of income both currently and after retirement
- Determining current and future expenses
- Creating an effective plan for saving and investing for your retirement years
When you begin the retirement planning process, you work with a professional that can help you make the best decisions possible for your financial future. This might include lowering your current expenses or paying your home mortgage off early, so you don’t need to make those payments into retirement. You and your financial advisor might decide to place funds into stocks or bonds.
In many cases, your financial planner looks at how many years you have left until you want to retire in order to make the best decisions possible. You’re never too old or too young to begin retirement planning. It helps you make smart financial moves for your future.
Why Is Financial Planning Important?
When you’re a working adult, life is busy. Weeks go by before you realize you haven’t done anything to plan for your retirement years. Oftentimes, you wonder why retirement planning is important.
Retirement planning is essential for you to enjoy life after working every day. During retirement planning, you identify additional sources of income during retirement, so you aren’t reliant on Social Security to live your best life.
These additional sources of income help you meet expenses, such as:
- Unexpected medical costs. Even with Medicare, you may find yourself with soaring medical bills.
- Traveling expenses if you want to see the world during retirement
- Rising costs of everyday items and expenses, including food, utilities, gas, insurance, and more
With retirement planning, you won’t need to rely on your children as you grow older. It can help you maintain your financial independence.
What It Does for You
When spending your time and money, you want to know that there are benefits for it. There are many things that retirement planning can help you with. These benefits include:
Identify Other Sources of Income
Whether it’s sources of income that you can use now or create for yourself in retirement, this type of planning helps you maximizes the money you have coming in. In some cases, you might invest in the stock market or a mutual fund to use a source of income after retirement. You can also review any income sources open to you such as retirement benefits from the military or disability income.
Provides You With Financial Freedom in Retirement
When you retire, you don’t want to become a burden for your children or find it necessary to get a door greeter job at Walmart. Obviously, the younger you begin retirement planning means the better your financial situation in the future. However, at any age, it can help you maintain your financial freedom in retirement. With wise investments and diligence, your financial future can be set.
Lower Your Tax Bills
Depending on the type of retirement funds you set up, you pay less in taxes on your salary. Many of the retirement savings accounts offer tax deferment until you start withdrawing the funds. Once you retire, and you’re not working full time, your tax rate may be lower than it is currently, saving you more money from your share of taxes.
By planning now, you can ensure that you pay as little tax as possible during retirement. This is why many people work with certified public accountants during the retirement planning process. These professionals understand taxes in a way almost everyone else doesn’t.
Lower Stress Levels
Struggling financially almost always sets your stress levels soaring through the roof. You don’t need that type of aggravation during retirement. In fact, stress can lead to physical ailments. You deserve to enjoy your golden years without the constant worry of meeting your financial obligations.
See Your Current Financial Situation
You may think you know your current financial circumstances. However, working on retirement planning helps you see the big picture. You might find that you’ve become complacent at your current employer and need to change companies to make more money. It can help you identify areas where you can save more money or expenses that can be lowered.
You might find that it’s a good idea to pursue a degree or graduate degree. The goal of retirement planning is to find the best ways to maximize your earnings and savings now to ensure a better future after you stop working full time.
Some companies have begun forcing people 55 years and older into forced early retirement. If you’ve been planning for retirement, this won’t be a scary time. While you might not have reached your retirement goals yet, you’ll be in a lot better position.
In some cases, you may be able to save enough to choose to retire early. Retiring early is a great choice if you’re successful in retirement planning.
At McNurlin Hitchcock, our certified public accountants can help you manage your finances and plan for your future. If you have questions or need to schedule an appointment, contact us today.