Retirement Planning Basics
Retirement planning is the process of deciding income goals and determining what is necessary to achieve these goals. There are many factors that go into determining if these goals are achievable. Income sources, expenses, and asset management all come into play to determine whether a realistic retirement plan is set in place. Future cash flows are also used to determine whether retirement goals are achievable. Future cash flows look at total capital assets that enter your possession vs. total capital assets leaving out.
When should you start planning for retirement?
There is never a better time to start retirement planning than now. Planning for retirement is all about planning for the future and the emphasis on planning for retirement varies for everyone. These variations could be determined by age, mindset, and income. Most young people just want to set enough money aside to retire
while some older people may want to have a target number or specific amount set aside for retirement. No matter your age, planning for retirement is very important.
How to Start Planning for Your Retirement Savings
The first step in planning for retirement is to find a retirement planner. Retirement planners are professionals that identify your assets and expenses in order to calculate future cash flows. They can also help you with figuring out where to retire when to retire, and what kind of investments need to be made in order to meet your financial goals.
Once you retire, retirement planners help determine how much you need to live and how much you can afford to spend during the spending phase. This is the phase where you travel and enjoy life. A retirement planner is needed for this because once you’ve retired, income decreases along with living expenses.
Retirement planning and savings not only helps you visualize your future but, it helps you to plan for it as well.
A retirement investment is an investment or a commodity used to go towards your retirement plan. A retirement investment can come in many forms including, property, IRA’s, index funds, and stocks. When making a retirement investment, keep your age and retirement goals in mind. The younger you are when you start investing the more risk you can take with your investment choices. It makes sense for you to be more conservative with your investments the closer you are to retirement.
The downside to conservative investing is that conservative investments yield less potential earnings. In order to avoid this problem, it is best to start young although it is never too late to prepare for retirement. The biggest part of retirement investing is asset allocation. Asset allocation is the breakdown of your retirement portfolio and includes three main parts. The three parts are stocks/equities, fixed income, and cash.
Making Retirement Investments
One of the safest forms of retirement investments is government bonds. United States government debt securities are low-risk investments that yield little to no rewards. Bonds are like loans that are issued by you and these loans will be paid back to you with interest in an agreed upon timeframe.
One of the most common forms of retirement investments is IRA’s. IRA’s are individual retirement accounts (individual retirement agreements) that provide tax benefits. Traditional IRA’s and Roth IRA’s are the 2 main types of IRA’s and both provide different benefits to the investor.
Traditional IRA’s provide tax benefits on the front end while Roth IRA’s provide tax breaks on the backend. With traditional IRA’s, taxes are not applied to contributions while with a Roth IRA, taxes are applied to the contributions but aren’t applied to later withdrawals.
All methods of investing have advantages and disadvantages. Do proper research and inquire about different investing methods at your financial institution.