It will probably not shock you to learn that working Americans under the age of 40 don’t give much thought to their retirement planning. Certainly, young professionals tend to have an awful lot of distractions keeping them from delving into investments and savings. They work long hours, and with more connectivity than ever, the line between home and work blurs a little more with each passing year. People in this age range are often getting married, raising young families, purchasing a first home, or perhaps completing a college degree. However, something else is happening in the background – they are creeping ever closer toward a retirement they might be completely unprepared for.
Indeed, even some people nearing retirement may have a difficult time articulating what retirement will look like for them. Will they follow the traditional model of walking out the front door of their office and never working again? Will they continue to work in a part-time or advisory capacity for their old business? How do they plan to support themselves once they’re no longer drawing the same salary?
It’s never too early to begin planning for your eventual retirement. For starters, here are 4 things you can do right now.
Just Start Thinking About Retirement
The younger you are, the less likely you are to be thinking seriously about retirement. In fact, 49% of working individuals polled admitted that they do not think about retirement at all, while 16% said they think about it occasionally, and only 11% are giving their retirement planning a great deal of thought.
This means that nearly half of working Americans are flying blind when it comes to retirement. They may have a savings account, or a 401(k) through their employer, but other than these passive forms of planning, they haven’t mapped out what they plan to do. Others have no savings whatsoever, which is clearly going to lead to trouble later on.
One of the most important things you can do to get the ball rolling is simply start thinking about your retirement. Sitting down with a financial advisor and talking about your options may open up some possibilities that you didn’t even realize were there. Of course, the earlier you have this conversation, the better. Too many young people assume that retirement planning is “for older people” and miss out on good financial opportunities.
Decide How You Will You Pay for Living Expenses
Right now, you are supporting yourself through the earnings you make at your job. But what happens when you reach an age where you are no longer able to perform that same job? There are a number of ways in which retired people help to finance their lifestyles. Chiefly among these options is Social Security benefits. While it is true that there are some concerns over the sustainability of Social Security, many retired people plan to depend very heavily on these payments.
If your job offers you a pension, that will also help to supplement your income after retirement. Some employers also offer 401(k) plans where a portion of the employee’s contributions are matched, and the funds are invested. If your line of work offers neither a pension or a 401(k) plan, you should begin considering an IRA (Individual Retirement Account) plan which allows you to set aside tax-deferred savings.
Some other possible sources of retirement income include a spouse’s job, a part-time income, a personal savings account, real estate, the sale of the business, or financial help from family.
Find Out How the Great Recession Impacted You
If you are the kind of person who maybe glances at a 401(k) statement once a year, you may have taken a large financial hit during the Great Recession, and not even realized it. The economy went into a bit of a free-fall beginning with the housing market crash of 2007. If any part of your savings was invested in real estate, it’s possible that you lost money when the bubble burst – but many different types of investments also suffered in the years following.
If the recession hit when you were in your 20s, chances are you will be able to recover just fine, because you have time on your side. However, if you are hoping to retire in the next couple of years, it is important that you work with someone who can help you recover from those losses.
Learn Which Costs are Likely to Go Up During Your Retirement
A person retiring at age 65 can expect to live at least 20 more years, if not longer. During that time, the prices of things will continue to rise, just as they do now, And if you do not have your money wisely invested, you may not be able to keep up with increasing costs.
For one thing, your travel, entertainment, and social event related spending is likely to go up, especially in early retirement. Retired people often take advantage of their newly discovered leisure time to see the sights and have the adventures they couldn’t have while they were busy working. Of course, increased spending in early retirement can have an effect on how you can spend your money in your later retirement, so planning is essential.
Healthcare expenses will also go up during retirement. Not everyone fully understands how the Medicare system works, and can be surprised to find that there are sometimes expensive co-pays, deductibles, and premiums; plus the cost of prescription drugs may go up. As you progress until later retirement, your medical needs will also increase. Some retirees opt for long-term care facilities, which can be very expensive.
Retirees often increase their spending on family, especially as grandchildren show up. And of course, throughout your retirement, you can expect to deal with taxes and inflation.
If you have been giving much thought to your retirement, consider this your formal invitation to do so. No matter what age you are, you can benefit by speaking with a financial advisor about how to get the most enjoyment out of your hard earned retirement. For more complete breakdown of retirement expenses and preparations, download our free guide called “Living in Retirement.”