How Early Should You Start Planning for Retirement?
Almost everyone will retire at some point. But retirement may be decades away, especially if you’re young.
When retirement is distant, it can be tempting to skimp on planning in favor of more current financial issues.
However, retirement is typically one of the most significant financial undertakings. It involves many aspects, such as saving enough to live your desired lifestyle, estate planning, ensuring your loved ones are covered, and more. So, it’s wise to start planning for retirement as soon as possible. With that in mind, this article will dive into a few critical ways to begin your retirement planning early.
Ways to plan for retirement
Here are three key steps to plan for retirement:
- Get a life insurance policy
According to LIMRA, 68% of households with life insurance would feel financially secure if the primary wage earner were to pass away unexpectedly. Only 47% without life insurance say the same. So, getting a life insurance policy is a critical step in planning for peace of mind in retirement. If you pass away during the policy term, your loved ones receive a death benefit to help replace your income and pay off debts. You can also consider getting a life insurance retirement plan (LIRP), which is a permanent life insurance policy that builds up cash value over time to provide financial security after you retire.
Life insurance also serves as a way to pass more of your wealth down to your heirs when you pass away because the death benefit is tax-free. That way, they get the full death benefit payout without owing taxes on it.
- Contribute to a retirement account
Retirement accounts provide tax advantages that make it easier to save more money for retirement. As a result, your retirement assets can potentially grow faster. For example, full-time employees may have access to an employer-sponsored retirement account, such as a 401(k). Contributions are pre-tax, meaning they aren’t factored into your taxable income. These also often offer matching bonuses — free money for retirement from your employer. Try to contribute at least up to the matching bonus limit.
Once you hit that matching bonus, consider an Individual Retirement Account, or IRA. There are two types:
● Traditional IRA: Contributions are pretax, but retirement withdrawals are taxed at your ordinary rate.
● Roth IRA: Contributions aren’t tax-deductible, but qualified retirement withdrawals are tax-free.
- Create an estate plan
Estate plans detail all your end-of-life wishes, such as asset distribution, financial and medical decision-making, and more. Without this, your family may have to go through time-consuming, costly court battles.
There are several key elements of an estate plan. One of the most important is the will, which lays out your wishes for asset distribution to your heirs. Powers of attorney are also vital for ensuring others can make decisions for you if you’re incapacitated. The durable power of attorney assigns someone to handle financial decisions on your behalf if you become incapacitated. For example, a person with a durable power of attorney could pay bills, get loans, and access your financial accounts. Meanwhile, a medical power of attorney assigns someone to make medical decisions on your behalf if you become incapacitated.
Another key piece of your medical documents is the advanced health care directive, which states your wishes for end-of-life medical decisions. And an often-overlooked piece of estate planning is the funeral. You should also get this in writing for your wishes to be met. Creating a funeral planning checklist can help you knock each step out as efficiently as possible. Here are some steps to planning a funeral:
● Compile vital statistics
● Decide who will be involved in the funeral service
● Write down your preferences for the viewing and service
● Determine your desired disposition method and memorialization
● Arrange for payment
Make sure to review this information periodically and keep your loved ones up to date on these matters.
Prepare for retirement as soon as possible
It’s smart to start planning for retirement as early as possible. This will maximize the chance that you reach all your retirement goals and give you more room to adjust if needed. Start by shopping for a life insurance policy to ensure your loved ones have the financial protection they need after you pass away.
Meanwhile, start contributing to retirement accounts as much as you can comfortably afford. Then, put together an estate plan, even if retirement is far away. Once you have it in place, adjusting it later is much easier. These are just a few steps that can help you plan for retirement. But doing them now will give you more peace of mind and help you achieve your retirement goals.
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