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An honest assessment of the current financial situation is crucial to coming up with a plan that addresses any shortfalls accurately.
Start by calculating how much money you have in your retirement account. This includes balances from individual retirement accounts (IRAs) and workplace retirement plans. If you plan to use a taxable account specifically for retirement, include it, but don’t use the money you save for an emergency or a bigger purchase, like a new car.
Existing retirement savings should provide the bulk of your monthly retirement income, but it may not be the only source. Extra income can come from somewhere other than your savings.
Most workers are eligible for social security benefits, depending on factors such as occupational income, years of service, and the age at which they receive benefits. For workers without current retirement savings, this may be their only retirement asset. The government’s social security website provides a retirement benefit assessor to help you determine your monthly income after retirement.
If you are lucky enough to have access to a pension plan, your monthly income should increase. You can also add up your part-time income after retirement.
It is an important factor in retirement planning. You should develop a monthly budget to estimate your retirement expenses, such as housing, food, and leisure activities. Health and medical costs like life insurance and long-term care insurance.
Planning for retirement means assessing not only your spending habits in retirement but also how many years retirement may last. A retirement that lasts 30 to 40 years looks very different from one that lasts only half as long. While early retirement may be a goal for many, a reasonable retirement date can strike a balance between the size of your retirement portfolio and the timing of your retirement. It’s best to make conservative assumptions in case your estimate is a little off base.
With 10 years to go before retirement, those who are behind schedule need to find ways to increase their savings accounts. In order to make meaningful changes, it may be necessary to raise your savings rate and reduce unnecessary spending. It’s important to figure out how much money you need to save to make up the difference. Automatic savings options through payroll or bank account deductions are usually ideal to keep your savings on track.
Risk tolerance varies at different ages. As workers begin to approach retirement age, portfolio allocations should gradually become more conservative to conserve accumulated savings. Retirement portfolios at this stage should focus primarily on high-quality dividend-paying stocks and investment-grade bonds to generate conservative growth and income.
If you are behind on your savings, you may be tempted to increase the risk in your portfolio in order to earn above-average returns. While this strategy may sometimes succeed, sometimes make things worse. Some additional risks may be appropriate but taking too much risk can be dangerous.
Money management is a relative minority area of expertise. For those who want a professional to monitor their personal situation, it may be wise to consult a financial adviser or planner. A good planner can ensure that the retirement portfolio maintains a risk-appropriate asset allocation and, in some cases, provides advice on broader estate planning issues.
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