Retirement: Overview, Purpose, Benefits and Types
In order to retire with partial Social Security Benefits, individuals often wait until the typical age of 62. However, in order to receive full benefits, individuals often wait until the age of 67 before they consider giving up work. The benefits that Social Security provides can vary based on individual income and other specific factors. These benefits need to be explored to their fullest potential when planning for retirement, as Social Security should be one of the most important aspects of your retirement strategy. Once an individual retires, Social Security may become the only source of active income besides the income received from the sale of investments or assets.
When saving for retirement, determining how long you may live past the point when you stop working is essential to properly plan for retirement. Ensuring that you and your family do not run out of money in your lifetime is crucial, so proper retirement planning is essential for a good quality of life post-retirement. On average, individuals may live 15 to 20 years after turning 65. With proper health, dieting, and exercise, that number can increase by another 10 years or more, so ensuring that enough money is saved up or invested in order to have savings to fall back on is essential. Every individual and family’s time horizon is different, so planning accordingly by creating a customized plan and strategy is essential.
Saving and Investing Strategies for Retirement
When saving for retirement, individuals often use the following three investing and saving strategies in order to save for retirement. These include employer-sponsored retirement plans such as a 401(k), retirement savings such as various investments (IRA), and Social Security retirement benefits.
The two main types of investment accounts individuals use to save for retirement are 401ks and IRAs. A 401k plan is a company-offered retirement savings plan taken by many American employees. It has tax advantages built into the plan to provide cost-saving benefits to individuals saving for retirement. Once an employee signs up for a 401(k), they agree to deduct a small percentage of each paycheck directly into a retirement investment account. The employer has the opportunity to match a part or all of that contribution. The amount is dependent on the employer’s matching policy. The typical match is around 50% of what is put in, but the actual amount is dependent on the employer’s matching policy. Employees are allowed to contribute around $20,500 per year to the account as an employee. While employees do get to select from a number of investment options, typically mutual funds, the selection is normally not as diverse as an IRA.
While this does make a 401k much safer than an IRA, IRAs have some of their own benefits too. An IRA, or an Individual retirement account, is a tax-deferred investment account created to help individuals save for their retirement. An IRA provides similar tax benefits to a 401k and promotes long-term incentives to invest. With an IRA, the selection of stocks or mutual funds is endless, and individuals have the liberty to invest on their own or with a financial advisor or Robo-advisor. However, investors are not able to contribute as much as they can with a 401k with a limit set at $6,000 for the year of 2022.
Both a 401k and IRA are excellent tools when preparing a savings or investment plan for your retirement.
Helping you achieve your evolving financial objectives
Preparing for Retirement
Another important aspect of retirement planning is to determine exactly how much income you would need to retire comfortably and live the desired lifestyle you want to live post-retirement. All monthly and yearly expenses should be considered, with ample room left for daily spending. A professional budget can help an individual or family achieve this goal. When building such a budget, it is essential to calculate all possible expenses, such as health insurance, housing, clothing, food, transportation, emergencies, and much more. Factoring fun daily costs such as entertainment and travel is also important in order to live a fulfilling lifestyle in retirement.
A disciplined plan set in motion, with monthly automatic deposits into savings accounts, can add up over time to produce a stockpile of savings for one’s retirement. Typically, professionals recommend retirees save around 80% of their pre-retirement yearly income to continue the same pre-retirement standard of living. Currently, in 2022, individuals need around $1 million dollars in liquefiable assets in order to retire comfortably; however, that number will only increase as the years go on. Due to the decrease in social security yearly payouts in recent years, surviving just off of social security is not enough, and proper savings and investing is needed to live comfortably in 2022 and onward, especially with rising life expectancy rates.
Financial institutions and brokerages often offer no-minimum, no-fee retirement accounts that let individuals and families make automatic monthly deposits as low as $25 or $50 to build that retirement savings stockpile. Furthermore, many employers offer automatic investment with many 401k employer-matching investment plans. Contributions can be submitted automatically with no worry from the employer or employee.
Retirement Planning Professionals
When planning for retirement gets complex and tedious on one’s own, seeking out the help of a financial advisor or a retirement specialist can be in the best interest of an individual or family. These professionals can provide financial advice, assistance, and guidance on the direction one’s retirement planning should go. While a commission or fee would be requested for their service, the long-term benefits of a proper retirement plan could contribute to greater savings and return on investment. Miscalculations can happen when planning one’s own retirement, but with professional help, these mistakes will not emerge in the retirement planning process.
- Social Security. “Retirement Benefits”. Accessed July 15, 2021. Accessible From: https://www.ssa.gov/benefits/retirement/learn.html#h1
- Social Security Administration. “Life Expectancy for Social Security”. Accessed July 15, 2021. Accessible From: https://www.ssa.gov/history/lifeexpect.html
- Aging.Senate.gov. “America’s Aging Workforce: Opportunities and Challenges”. Accessed July 15, 2021. Accessible From: https://www.aging.senate.gov/imo/media/doc/Aging%20Workforce%20Report%20FINAL.pdf
- USA.gov. “Retirement”. Accessed July 15, 2021. Accessible From: https://www.usa.gov/retirement
- Federal Reserve Board. “Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer Finances”. Accessed July 15, 2021. Accessible From: https://www.federalreserve.gov/publications/files/scf20.pdf
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