When it comes time for retirement, individuals need to be prepared to replace their salary with a dependable fixed income in order to remain financially secure. Proper retirement planning is a must. Many people do not know how to prepare for their retirement and end up becoming panicked. Thankfully, there are some straightforward ways that can help individuals replace their income and enjoy their retirements with no financial stress.
Every Situation Is Unique
There is no cookie-cutter approach to replacing income for retirement. While most retirement studies have shown that replacing 70-80% allows an individual to maintain their lifestyle in retirement, this is not a hard-fast rule for every situation. Each person’s situation is different. The amount of income replacement an individual will require depends on the size of their family, lifestyle, bills, and their threshold for risk. There are a few steps individuals should take to ensure they know how much income replacement is necessary for their unique situation.
- The approach a person takes will depend on their timeline. Young people have much more time to prepare for retirement, so they can take bigger risks with investment strategies. Those closer to retirement will likely need to rely on solid strategies that feature much less risk so as to avoid Sequence of Returns risk.
- Budgeting is essential for retirement. Individuals need to consider their current lifestyles and budget needs before they begin to put a plan into action. An individual cannot start accurately projecting how long their nest egg will last them in retirement if they do not first define how much that retirement will cost each month.
- Estate planning is another essential part of planning for retirement. Making sure that your hard earned money is strategically passed to your loved ones as tax-efficiently as possible may require professional guidance. Having a sound life insurance policy can help retirees protect their retirement lifestyle and is an integral part of estate planning.
Approaching the retirement process in a straightforward manner will help individuals to be prepared properly. It takes a concerted effort to plan for retirement, and it is better to start when a person is younger rather than waiting until later in life. The more planning that takes place, the more financially secure retirees become.
Living Expenses Generally Decrease After Retirement
When planning for retirement, studies have shown that many retirees are surprised when they realize their expenses are likely going to decrease after they leave their jobs and set out on retirement adventures. There are no large gasoline charges for work commutes, no need to purchase or update the professional wardrobe, and even eliminate expenses like lunch or daily coffees. Although expenses and income generally decrease, this does not mean a person should just cross their fingers and hope retirement works out. It is always better to have more money than is necessary for living comfortably. Having too little money can place a strain on retirees and often sends them back into the workforce, at least on a part-time basis.
Factors Affecting Income Replacement Percentages
Multiple factors will determine the percentage of income replacement a person will need after retirement. A retirement planner is essential for helping individuals plan for replacing their income wisely. With time and attention to detail, individuals can be prepared. The following are some factors to consider when determining the amount of money a person will need for retiring comfortably.
- Marital status is undoubtedly an important consideration. Obviously, family size is going to affect how much money is required. Although married individuals will need more money, they have two people to ensure their finances are stable for retirement.
- Financial obligations are another important factor that will determine income replacement percentages. Will the individual have mortgage expenses, car payments, and other financial obligations? Factoring these into the equation is essential for ensuring individuals have the money they need for retirement.
Reasons for Hiring a Retirement Planner
To get started on preparing for retirement, it is wise for individuals to seek professional help from a retirement planner. Planning for retirement is not for the faint of heart. It is important for individuals to realize planning for retirement is about much more than saving money. It is also about planning how that money will be spent, to meet needs, wants, and possible wishes. The following are some of the reasons individuals should hire a retirement planner.
One of the biggest reasons for hiring a retirement planner is most people are not experts on finances or retirement. We don’t cut our own hair or prescribe our own medical cures, we hire experts. Hiring professionals helps individuals to avoid making costly mistakes in the process of planning for retirement. Working with a financial planner from the beginning will help individuals to avoid wasting time as well as money.
Another benefit of hiring a retirement planner is commitment. Once a person hires a professional, they will stop putting off planning for retirement. The sooner a person starts preparing, the better their retirement income sources will be once they leave the workforce.
Finally, it is important to note that people are living longer than ever before. Proper planning is essential for the long haul. Working with a retirement planner will help to ensure a person is financially prepared to enjoy their retirement for many years to come.
Walker Capital Preservation Group is dedicated to helping its clients prepare for retirement with less stress. Tom Walker, the founder of WCPG, and his team have a combined 18 years of expansive experience providing financial planning help for federal employees and their families.