What is Retirement Planning? Definition, Tips, & Examples

What is Retirement Planning? Definition, Tips, & Examples

Save more, spend smarter, and make your money go further

We all dream of retirement—when we hope to have more time to travel, spend our golden years with family, or just sit back and enjoy the finer things in life. However, it’ll be hard to do any of that if you don’t have your finances in order. That’s where retirement planning comes in.

A good retirement plan can help you indulge in peaceful, joyful, and easy retirement in the future. It’ll take some time and effort to get your retirement plan in place but it’s worth it. Plus, you don’t have to figure it out all on your own, we have some tried-and true tips to help you start off on the right track. 

Keep reading or use the links below to learn more about retirement planning:

What is Retirement Planning?

Retirement planning is a process that allows you to take steps to prepare for financial stability in retirement. Retirement planning requires you to think about your financial future and set goals to help you ensure you’re on the right track. With a well-thought-out plan you can enjoy peace of mind that you’ll be able to live comfortably in your golden years, even after you stop working or retire completely. 

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You should start to plan long before your retirement age, and the more time you have, the better. People who have more than 10 years left to retire can experiment and invest in a variety of ways, while those that have fewer years left should take more conservative steps to improve their financial situation.

Why Is Retirement Planning Important?

Retirement planning is important because it ensures that you have the money you need to have stability once you’re retired. It’s the best way to budget for your needs—like making sure you have a roof over your head, your bills are covered, and you’re able to afford medical expenses. Otherwise you could find yourself in a situation that turns your life upside down and puts a burden on you and those around you. Nobody wants that.

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It also helps make your golden years more enjoyable. With all that new free time and no more work-related stress, you’re going to want to make the most of your time. However, without budgeting ahead for discretionary income that lets you check off your bucket list, it might not be possible.

That’s why you want to get a head start on planning for your retirement, so you can ensure you have the financial stability you need. 

Before you jump into the process, you’ll need to do some preparation. It is best to identify all sources of income, calculate your expenses, look at how much you have saved and whether you have any other assets at your disposal. And that’s just the start.

How to Create a Retirement Plan: Step-by-Step Guide

As mentioned earlier, a few crucial steps need to be followed to create a successful retirement plan that will bear fruit in the future. Anyone that follows these steps will be able to come up with a suitable plan that will help make retirement something you can look forward to with confidence. Here’s the process broken down into four easy steps:

Consider your retirement timeline

This is the first and most important step. You first need to consider your current age and then estimate your expected retirement age. With those numbers, you’ll calculate how many years you have left until your retirement. If you have a longer amount of time left, you can take more risks to grow your retirement savings. 

For example, if you have more than a decade or two before retirement, now’s the time to take advantage of certain investments you might lose out on but have time to make up for that loss. However, if you do not have as much time left, you will have to opt for less risky investments and focus on saving as much as possible.

Investing in something that gives good returns is very important so that you have enough funds even if inflation occurs over the years. However, this is not a big concern for people that do not have as many years left to retire. For those closer to retirement, it’s usually a smart idea to focus on income streams, save up on capital, and invest in less volatile options such as bonds.

Create a spending budget

Break your retirement plan into a few components to make the process simpler. First you should set up a retirement budget that lays out how you’ll be spending your money. Calculate living costs, your optimal discretionary spending, and other financial needs. Make sure you also include expenses that might be off your plate or change—for example, if you refinance your mortgage.

Although you might think that you will cut down on spending and will require a lot less than before, you could actually be wrong. When setting up a retirement budget, it’s important to consider factors like inflation that impact the costs of goods and services as well as the value of money. 

Creating a budget will give you a basic idea of how much you’ll actually need to have during your retirement and allow you to plan accordingly. But how do you plan now? For many of us, that means making another budget that we use now. 

This will help ensure you’re saving as much as you need each month and year as you approach retirement. Even if you’re forty years out from retiring, having retirement savings in your budget is important. 

You can use free financial Calculators, like our retirement calculator, as well as trusted personal finance tips to help you adhere to your budget and stay on track for the future.

Consider different retirement accounts 

When planning for your retirement money needs, it’s important to consider the different types of retirement accounts—like a 401k vs 403b or an IRA account—you can use to help you reach your goals.

Now that you know you have a budget and retirement timeline to work from, you’re ready to start saving. Before you set up your retirement accounts, one thing you need to take into consideration is the real after-tax rate of return. You need to see what investing your income will bring in and when it comes time to cash out in the future.

By choosing the right retirement accounts, you can gain the most profit while paying the least taxes. While paying taxes is inevitable, there are ways to minimize your tax obligations and keep more of your money in your savings.

Hire a financial advisor

Last but not least, it may be beneficial to hire a financial advisor who can help you set up and oversee your retirement plan. Before you start searching up retirement planning near me, you must first understand why a financial advisor is a must.

A financial advisor will help you lay out your retirement plan in great detail. They will not only help you with all of the above steps but also be very thorough. These advisors have extensive knowledge of strategies, investment opportunities, tax regulations, and laws that enable them to help you come up with a plan that will bear fruit whether you have a lot or only a little amount of time left until retirement. 

As mentioned earlier, any financial advisor will help you go through each and every step in great detail and will be there along the way to help you take important aspects into consideration like 401k contribution limits, after-tax returns, and even social security benefits. 

A good financial advisor will help you create a budget that saves up for recreation, education, retirement, and all your other future expenses. All in all, working with a financial advisor will help you reap maximum benefits.

Here’s how you can go about finding a financial advisor to help with your financial health. If you find that visiting one in person isn’t ideal, there are also online financial advisors. You can also use Mint for easy retirement planning and overall financial planning straight from your phone.

Final Notes

If you don’t already have a savings plan for your retirement, it’s a great idea to start working on one now. The sooner you start saving up, the less stressed you’ll be. Plus, having a solid retirement plan in place can help you save up the money you’ll need. Being prepared means you’ll get to spend more on recreation, travel, and more. And hopefully, you’ll get to retire by the goal date you had in mind when you started your retirement planning journey.

We know that planning for retirement can get a bit tedious, tiring and overwhelming. This is why we at Mint have created a great tool that helps users create budgets, manage accounts, and even set realistic saving goals. Plus, it’s easy to use and tracks everything in one convenient place. 

So, what are you waiting for? Start planning ahead and thinking about your retirement plan today!

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