Tips to Prepare for Retirement Success

How Improving Financial Wellness Today Will Reap Rewards in Retirement

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Portra / The Balance

The retirement planning process takes time and effort. At times it may seem like a complex task. But what you do today can help you achieve your goals and allow you to maintain the lifestyle you want in your later years.

Here are some tips to help you reach those retirement goals one step at a time.

Tip 1: Focus on What You Can Do Right Now

If feeling at ease about the days when you no longer work seems fleeting, you're not alone. Only 23% of workers feel very confident that they're putting away enough money to live securely during retirement, according to a survey by the Employment Benefit Research Institute. Only 42% have even tried to run the numbers to see what they'll need to cover their expenses when they retire. Without enough information, you might feel unsure about where to even start.

If you aren't feeling confident about retirement or fall into the category of "unknowns" because you have not yet created a basic plan, you can start preparing for the future with these first steps.

Create a Plan and Put It in Writing

Figure out what you will need to retire. Even if retirement is a long-term goal, a ballpark estimate will do. Many experts say to use 70% to 80% of your working income as a ballpark number, but this will depend on you and your likes, dislikes, health, and plans for when you retire. Choose a starting number, then review the income sources you'll have when you retire, such as Social Security or a 401(k) account.

Figure out what you need to save annually to meet your goal, and make a monthly savings plan that will get you there.

Move Your Your Plan Forward

This is by far the most vital first step because putting it off will only serve as a roadblock on your path to financial independence. If you discover that you will not be able to reach your goal with the current money you are saving, take more action today by finding ways to save more, reduce your spending needs, get rid of debt, or adjust your plans. It is never too late to get back on the right track.

Track Your Progress

Running a retirement calculation at least once per year is a smart move. It will help you see if you are on track to meet your goals. Keep in mind that your plan should be fluid, not static. Think about the impact that life events such as a marriage or divorce, promotion or layoff, birth of a child, and funding an education will have on your plan.

If needed, make changes to your plan as your life changes, and keep the lines of communication open with your spouse, partner, friends, family, and financial planner.

Tip 2: Protect Yourself and Your Loved Ones

When planning for the day you retire, it's easy to get caught up in the distant future and avoid thinking about present risks. Avoid that mistake by thinking about the financial risks you can withstand and the ones you can reduce or get rid of.

Your Life

Make sure you have ample life insurance and the right type of insurance for your needs. It's best to review your coverage needs using an unbiased approach before thinking about the type of policies you may need to fill any coverage gaps. You can choose from term, whole life, universal life, and variable life plans.

Review your policies at least once a year. As your life changes or major life events occur, your coverage may need to change, too. As your planned date to retire nears, be sure to revisit your life insurance needs.

Your Health

A long-term disability event or stay in a nursing home can have a big and long-lasting impact on your wealth. Ample coverage can reduce the financial risk that comes with these events and should be a part of your retirement planning review. If you are tense about your healthcare plan as you get closer to the day you retire, be sure to include healthcare costs in your budget plan.

Your Assets

When it comes to investments, a diversified portfolio helps reduce the risk of your entire nest egg going south. Choosing the right investment allocation based on your financial goals, age, risk tolerance, and time horizon can have a major impact. But you also want to think about other assets such as your home or other real estate properties.

Perhaps your most vital asset is your ability to earn income both now and in the future. You may be able to use your passion and skills to earn extra income through self-employment or a retirement side hustle.

Tip 3: Look at All of Your Retirement Saving Options

There are many options that can help you save for the retirement of your dreams. Here are three accounts to think about.

Employer-Sponsored Retirement Plans

Many financial experts suggest that your company retirement plan, such as a 401(k) or 403(b), can be one of the best places to put your money. Why?

  • Contributions are made pre-tax, so they reduce your taxable income. They also grow tax-deferred, so you won't pay taxes on the gains until you withdraw the funds.
  • The majority of companies offer matching programs that can enhance the return on your money. To benefit from a match program, make sure you are putting money into your account at least up to the company match, if not more. The average employer contribution amount is only around 4.7%, and most people can do better. Check with your HR department for more details.
  • Employer-sponsored plans are more portable than they used to be. They can be moved without tax consequences into an IRA or to a future employer's plan.

Check Out IRAs

Even if you are participating in an employer-sponsored plan, don't feel like it is your only option when it comes to saving for retirement. IRAs are another great way to sock money away for the future. Some income limits and other rules apply in order to deduct the contribution or to contribute to a Roth IRA, so make sure that you are choosing the best IRA for your needs. You can always contribute to both if you are not quite sure.

Learn About HSAs

Health savings accounts provide great tax benefits for out-of-pocket healthcare costs. Some financial planners suggest that they can be a source of retirement income to be applied to healthcare costs, which tend to go up when people retire.

Tip 4: Improve Your Overall Financial Well-Being

Financial wellness is a term used to describe the status of our overall financial health and is linked to how well-prepared a person is to retire. Look at the way you manage your finances and take a holistic approach to your overall financial health. Here are some easy ways to improve your sense of financial wellness and find more cash to put toward your later years.

Raise Your Income

If you feel like you don't have enough income to put into savings, you might want to increase your income by working overtime, getting a part-time job, starting a business, or buying a rental property. Use the extra income to reduce debt so that you have more for the future.

Reduce Your Spending

A budget or "personal spending plan" is a key step to retirement success. Living below your means allows you to increase the money you have to invest in a retirement vehicle for the future. Go beyond simply tracking where your money has gone and tell your money where to go instead. Figure out what you spend each month in fixed costs such as housing, utilities, and food vs. your discretionary lifestyle costs such as travel and dining out. See where you can trim back and put those savings toward your future.

Refinance and Consolidate Debts

If you have high-interest debt, spend some time looking for lenders willing to refinance your current debt at a lower rate than you have been paying. Secured debt, such as a car loan, will have a lower rate than unsecured debt. Real estate-based debt is often tax-deductible and can be financed over a longer time than most other forms of debt. If rates are low, it might be a good time to refinance your mortgage for a lower payment and put the amount you'll save every month into your retirement fund.

Stop Paying Extra Fees and Charges

Is your bank and credit card charging high fees? Shop around for better deals by using online resources to compare rates and compare services between banks, credit unions, credit cards, and lenders.

Search for Ways to Reduce Your Taxes

Use flexible spending accounts (FSAs), if offered by your company, for paying medical and dependent care costs on a pre-tax basis. Max out your HSA if you are in a high-deductible health plan. Both of these options will reduce your taxes and free up money for savings.

Making your finances better doesn't happen fast. But if you take just a few of these steps on a regular basis, you will be on the path to retirement success.

Article Sources

  1. Employment Benefits Research Institute. "2019 Retirement Confidence Survey Summary Report," Page 3.

  2. Fidelity Investments. "Fidelity Q1 2019 Retirement Analysis: Account Balances Rebound From Dip in Q4, While Savings Rates Hit Record Levels."