Retirement is a significant milestone in your working life. To be able to hang up your work boots and call it a day is a dream for millions of workers around the world. However, times have changed, and many retirees are finding that state-sponsored pensions are no longer enough to live a comfortable, retired life. Read on to find out how you should prepare for retirement.
- Know your retirement needs.
What are you planning to do when you are retired? Are you planning to travel the world or sit in a retirement village and make new friends? No matter what your end goal is, the key is to make a plan that is suitable for that goal. “Lack of foresight and planning is often the biggest pitfall for retirees,” says Chart Westcott, COO of Ikarian Capital. Many find that their aspirations are unable to be achieved when they retire because they did not plan from the outset.
- Research and contribute to your employer’s retirement plan.
Many employers offer a retirement plan as part of an employment package. Known as a 401(k) plan (named after the relevant provision in the Internal Revenue Code), Chart Westcott recommends checking out the benefits of such a plan and finding out whether you are eligible for it. Since contributions to 401(k) plans are deducted from source before tax, you often will not notice that a deduction has been made from your paycheck, which is advantageous since you do not have to do the saving yourself.
Over time, the interest will compound and increase your overall entitlement, and employer contributions also help to make sure you have a large amount on hand for your retirement when it comes time to draw on the plan.
Ask your employer for an individual benefit statement (or equivalent) to find out what plans they have available for you.
- Find out about your social security entitlements and benefits.
Social Security pays benefits that are on average equivalent to 40 percent of what you earned before retirement. The Social Security website has a helpful estimator which you can use to estimate your Social Security benefit upon your retirement. From this, you can then determine how much extra you need to make sure you meet your retirement needs.
- Ask questions and seek financial advice.
Do not be afraid to ask questions and seek advice on financial planning if you need help. Although the earlier, the better, remember that it is never too late to start planning for retirement. There are resources available that can help you achieve your goals. For example, you can speak to your bank, your union or a financial advisor to find and develop a retirement plan that can suit your needs and abilities.
- Save, save and save.
The fundamental principle of a retirement plan is to save your hard-earned money. While the temptation to spend might be paramount, spending now may not be the best for your future. Financial security in retirement is not a guaranteed thing—it takes time, commitment and effort.
Start small if you have to and increase your savings month by month. The sooner you start saving, the more time your money has to grow (with interest), and the more money you will have when retirement comes around. Resist the temptation to touch your retirement savings when the impulse to buy comes around.
Infographic created by Mowery & Schoenfeld, providing individual tax services