How do you Prepare for Retirement?
Retirement readiness refers to your ability to retire. Have you set your goals, plan your income, know where you’ll live, and how much money you’ll need.
Retirement readiness looks different for every person and how you get there differs too. For some people, it will take longer than others. There’s no right or wrong way to do it as long as, in the end, you meet your retirement goals.
So what should you consider when determining your retirement readiness? Here are the four things you should consider for financial wellness in retirement.
Your Retirement Goals
Retirement doesn’t look the same for any two people. For example, you may want to downsize and spend time with your grandkids, volunteering, and spending time at home in your garden. However, your best friend might want to travel the world, work part-time, or stay in the house they raised the kids.
Decide what retirement looks like for you and what it might cost. Think about where you’ll live, if you’ll work, if you’ll travel, and how you’ll handle financial emergencies.
Income – Where will it Come From?
Just because you’re retired doesn’t mean you don’t need money. Income will be even more important in your golden years. Stop and think about where your income will come from, such as:
Will your spouse continue working?
Do you have a pension?
Did you set up a 401K or IRA?
Will you get Social Security?
If you haven’t set up retirement funds yet, now is the time to think about increasing your retirement readiness.
At what Age will you Retire?
Your path to financial wellness relies on knowing your target retirement age. The earlier you retire, the more money you’ll need saved. The later you retire, the more money you can contribute to your retirement accounts and the more money you can withdraw each year.
What is your Risk Tolerance?
Finally, consider your risk tolerance. The closer you are to your goal (retirement age), the less risk tolerance you have and vice versa.
You can take bigger chances when you're young, leading to greater rewards. You have more time to make up for a loss than you would if you took aggressive risks when you’re older. As you near retirement age, you should scale back and choose more conservative investments to keep your retirement income stable without risk of loss.
Preparing for retirement now is the best way to ensure you have a smooth transition into your golden years and can achieve financial wellness. Your goals might change through the years, but you can constantly adjust your plans accordingly.
The key is to plan for retirement as early as possible, setting money aside in tax-advantaged accounts and diversifying your income as much as possible. Working with a financial coach can help you determine the best way to achieve your retirement goals to have enough money to reach your goals and minimize your tax liabilities now and during retirement.