What makes a good retirement plan? For many individuals, a plan is considered good when it is comprehensive—well thought out and covers all the bases. However, what makes a retirement plan comprehensive will depend on multiple factors and circumstances that surround the individual. This means that what might work for another person and what he or she might consider good coverage might not work someone else. At the end of the day, retirement plans are crafted because of the individual’s unique needs.
However, this does not mean that you should just improvise. Yes, these plans are crafted to fit your specific needs and circumstances, but you should also refer to retirement planning guidelines in order to avoid getting overwhelmed.
As it covers the later years and it involves a great deal of money, retirement plans tend to be too complex and confusing.
The 20s: Get to Know the Basics of Retirement Plans
One of the biggest misconceptions when it comes to retirement planning is that starting in your 20s is too early. You have decades ahead of you, rent to worry about, and monstrous student loans to tackle, so why not wait a few more years, right? After all, there are more pressing matters to attend to and retirement is a concept that is still so far down the road. However, when it comes to something as intricate as retirement planning, it is never too soon to start.
Luckily, most of the younger generations are aware of the importance starting early. The problem is that they do not know what the specifics are or where to start. In a poll done by BNY Mellon, almost 20% of Millennials shared that they received no financial information at work or from educational institutions. On top of that, nearly half of these individuals shared that they are simply guessing at how much they will need for retirement. So what can the younger crowd do about this situation?
First, they ought to utilize the tools that are right the tips of their fingertips. Google all the different aspects of retirement and see how you can map out your own planning strategies. The basics are always a good way to start:
- Start saving money and try to be consistent about it. The ideal number is at least 10% of your salary, and it would be great to start with your very first paycheck.
- Employers typically offer 401(k) or another type of workplace plan. Employers often match funds, and this can boost their numbers significantly.
- Live within their means. It is easy to get caught up in the latest trends, but they ought to try to live by the golden rule: if you do not need it then don’t buy it. Set a budget, and stick to it.
The 30s: Start Exploring More with Investments
Shifting from their 20s to their 30s is a momentous event for some individuals. This is often the time when you start thinking settling down and purchasing a home. Some are starting a family or sending their children to school. Similar to their 20s, there are so many distractions and more pressing matters that require more of their attention.
The reality is that while many of the 30-somethings are thinking about retirement, they are not all actively taking steps in securing and strengthening their plan. The awareness is there, but urgency is still not quite present.
However, slowing down on retirement planning could pose negative effects. With that in mind, here are a few notes to remember:
- Keep in mind that workplace plans may be vital, but the action should not stop there. Remember that the goal is to continue working despite the distractions and circumstances.
- Individuals must also account for long-term savings and short-term emergency funds when they do their budgeting.
- The people in their 30s have the advantage of having a wider variety of investment options. Because of their age, they can be more aggressive in investing because should the market fluctuate, then they have the luxury of time to wait for it to recover.
The 40s: Push Through and Keep Track
In America, more than 40 million individuals are taking on the role of family caregiver to an ill or disabled loved one. Usually, these family caregivers are caring for a parent or a parent-in-law in their late 60s. And although they are usually employed, the sky-rocketing costs of long term care services have been creeping into their finances.
Often, this occurs when parents are running low on their finances or have not saved enough to cover the care that they need. When this happens, adult children usually take over. This then puts family caregivers in a compromising position because they have their own financial responsibilities to worry, and these expenses can take a big bite out of anyone’s finances.
As research points out, they spend approximately 20% of their income on out-of-pocket care costs. With that in mind, it is easy how retirement savings can fall back on anyone’s list of priorities.
Despite the obstacles, individuals must still remember to keep their retirement plans going. Here are the different steps they can take:
- Family caregivers must look into long term care tax breaks and exemptions. Through these deductions, individuals caring for their loved ones can free up more money that could go into other necessities. However, they must be mindful of the qualifications set. The requirements are indicated on the IRS website.
- Ask for help from other family members or find other means to alleviate some of the expenses. As the costs of care can cripple anyone’s finances, it is important for family caregivers to know when to ask for help.
Also, family caregivers must be proactive in finding programs and organizations that provide free or discounted services to the elderly and ill. It may be free transportation, discounted adult day care services, or even day activities care recipients can participate in. This way, family caregivers are able to save up a few more dollars, and this also grants more time to focus on other matters. Moreover, care recipients are able to socialize and have fun which can boost their health.
- Take note of saving milestones. According to Charles Farrell, a financial planner who wrote the book Your Money Ratios, individuals must target specific saving milestones to retire on time. He explains that a person who is 35 should have savings the equivalent of at least 1.4 times of their annual income while Individuals age 45 should have roughly 3.7 times. It may be difficult at times, especially when these people are caring for a family member, but it is important to try.
The 50s: Take a Leap and Strengthen Retirement Plans
One eye-opening data for most Americans is this: one-third of adults age 40 and older have done no planning for their long term care needs. On top of that, 4 in 10 mistakenly believe that Medicare will pay for the care services that they require as they age. It becomes quite a shock when they realize that this is not often the case. And while the 40-somethings have a few more decades to catch up, people in their fifties have a smaller window to do so.
It is easy to see how thinking about retirement after turning 50 can be a big cause for stress among many individuals. This is especially true for those who feel underprepared because of they had to focus on other challenges that were coming their way.
Moreover, this is the time when they need to have done something substantial. This is because, at this point, the targeted retirement age is just a few short years away.
So what can the individuals in their 50s do to strengthen their retirement plans?
- Research on guides to secure long term care coverage. One mistake that people make when it comes to long term care is that they believe that they will never need it. It may be because they have been eating healthy and taking care of their bodies through regular exercise and abstinence from vices. However, research shows that 75% of individuals will require some form of long term care service after turning 65. And without proper planning way beforehand, these services can quickly drain a person’s life savings. By planning early, individuals get to pay lower premiums. On top of that, they have a higher chance of qualifying for a policy and getting discounts because of good health.
- According to an article posted by the NerdWallet, the average debt that an American household has is $134,643. Now, these are not just because of poor lifestyle choices. For many of these individuals, the accumulated debt is because of rising medical and housing costs. While it may be difficult, these individuals should start tackling their debts.
The 60s: To Retire or Not to Retire?
Ideally, people retire at 65. And for the longest time, most of these individuals worked hard in their careers with that goal in mind. However, so many people now are changing their perspective for various reasons. More Americans are staying in the workforce after they turn 65.
One of these reasons is longevity. People have been living longer than before. In fact, those who turn 65 can expect to live a couple of more decades. Combine this with the rising cost of living, and it is easy to understand why so many people are hesitant to leave their paying jobs. Some are even scared into staying in the workforce because of the number of elderly individuals outliving their savings.
So this brings many to one question: can they afford to retire on time? Here are few considerations and suggestions that can help people in deciding when it is time to retire.
- Look into other income options. Some individuals find that leaving their careers and choosing other part-time jobs to be beneficial. This way, they get to have the rest that they worked hard for while simultaneously maintaining a source of income. By doing so, they get to ensure that their finances are replenished.
- Keep documents organized. These documents include insurance papers and banking documents. Also, having an advanced directive can come in handy. But before doing so, it is important to let the family members know.
- Adjust perceptions of retirement. This is because, for most of the people lives, they believed that 65 is the finish line, but circumstances change. Factors, like longer life spans and high costs, play significant roles. Bear in mind that delaying retirement does not necessarily equate to failing.