Human beings are special from other species because they can think and plan. Although this is true, most of us are carried away by everyday tasks that we forgot to think and plan. If it is difficult to think and plan a summer vacation that will take place in the next six months, how then are we going to plan something in the distant future like our retirement? It is better to start thinking about your retirement when you are young. These 13 Retirement Steps will help you cut through the haze to see the realities that will make the years ahead of you golden.
Step 1: When Can I Retire?
When thinking of the right time to retire, there are some things you need to consider before you do. Most people think the right time to retire is after a 30-year career, but this may be too early for you. Figure out what you need to do after retirement besides fishing, travel, golf, and paperclip art classes and how much they will cost; if you are at a loss, do not retire yet.
Step 2: What Will It Cost to Retire?
Figure out the amount you will need after retirement. Everyone is different. You need help to get the right amount to enjoy your golden years. Decide on the amount you need in retirement; while some people can survive with less than the amount they are spending now; many others want more.
Step 3: Free Money for your 401K
With 401k, you will earn instantly with no-cost return on the savings for your retirement. A 401k plan is absolutely and completely free, and it helps to reduce your tax bill, and it does not count against your taxable income for each year.
Step 4: Choose the Right Retirement Account
You need the right retirement account for your retirement savings. The best account for your retirement savings is the tax-advantaged accounts. There are many retirement accounts you can choose from and some of which include employer plan with a match, Roth IRA, employer plan without a match, taxable investment, Traditional IRA, and an annuity.
Step 5: Bonds or Stocks for Your Retirement Account?
While stocks are riskier than bonds, they have a higher expected return, and when you foolishly take the right risk, it can pay off in the long run. Market risk and reward travel hand in hand and you will get greater rewards with greater risk. Both bonds and stocks are very good to investors, and you can use either for your retirement account based on how you can take the risk.
Step 6: Social Security
Many younger people believe that the younger they are, the stronger their belief. Social security is very important, and it may not even exist by the time we need it. With few exceptions, salary earners today take up to 7.65% (taxes) out of every paycheck of which 6.2% goes to Social Security, and 1.45% goes to Medicare. The benefit of this Social Security is the provision of income in retirement, income for those who become disabled before their retirement time and income for those who survive Social Security benefits. You are eligible for this once you are above 70 years.
Step 7: How Working Impacts Your Social Security Benefits
After you have retired, the worst thing you can think of is working again because you will be tired of that routine already when there are other things to do. However, once you start enjoying the benefits of social security, you may want to work again. For those that return to work before their Social Security FRA (full retirement age) may see a reduction in their Social Security checks and this reduction depends on the amount of salary they receive during the year.
Step 8: The Impact of Home Ownership
Being a homeowner is more than having a house of four walls and a roof (and floor), if you have equity in your home, it can be a money tree. The biggest investments you will ever make is your home, and it is a symbol of stability and security. However, home increase in value since you bought it even if the housing market’s declines. You can sell and trade or sell and rent, especially to pay off your mortgage.
Step 9: Taxes on Retirement Income
Requirement demands lesser income than you need while working and once you retire, you are no more paying for Medicare taxes (also known as FICA taxes), Social Security and you won’t divert money to IRAs or 401(k)s any longer. However, the retirement income is usually taxed at lower rates. For low tax income, you can get your income after retirement from Social Security, tax-deferred retirement accounts, investment income, and Roth retirement accounts.
Step 10: Spending in Retirement
After retirement, which account should I spend from first? You should tap your taxable (the non-retirement account) accounts first and let your retirement accounts (tax-advantaged accounts) enjoy the benefit of no-tax payment for a longer time to grow much. You must know how much you will need and where the income will come from, and never leave a tax account unused. Lastly, save your Roth IRA for last.
Step 11: Estate Planning
Let your family be aware of your assets; we never know what will happen in the next few minutes. Always get ready for the possibility; you need to prepare for all the depressing-sounding things like wills, trusts, estate planning, and others. Do see an attorney, prepare a will and check it every five years to check its conformance with state law and its validity. Estate planning covers much more than a will. Estate planning is not fun, but it is necessary.
Step 12: What About Insurance?
Insurance is good, and it protects our assets and our family’s income. It covers our cars or homes, medical costs, and other disastrous events. Some of the insurance you need to take care of include life insurance, disability insurance, health insurance, and long-term insurance.
Step 13: Into the Future
This last step reflects on the personal issues after retirement. You will have a lot of time for yourself when you are no longer working; you will know the right time for fishing or golf or gardening and where it will take place. Also, do not place all the bill payments on your spouse.
In conclusion, these are the best requirements that you can use to have a hitch-free requirement, and you will be as comfortable as possible.
