How to plan now for retirement and a secure financial future
This article will:
Explain how to look ahead and prepare for potential big expenses in retirement.
Describe types of big expenses, from necessary healthcare to bucket list goals.
Outline strategies and guidance for retirement planning for different goals and needs.
Planning for retirement is a critical aspect of mid-career financial management. As you progress through your professional journey, you’ll want to consider potential big purchases that might become necessary or desired, but could significantly impact your retirement and overall financial well-being. Whether it's upgrading your home, pursuing entrepreneurial dreams, fulfilling travel goals, or addressing family needs, careful planning and strategic saving can make a significant difference in securing your financial future. By considering these expenses early on, and enlisting support from an experienced financial professional, you can develop savings and investment strategies and make informed financial decisions to establish stability and achieve your retirement goals.
Creating a master spending plan
When planning for retirement, it's crucial to create a master spending plan that includes both standard expenses and potential big purchases. Begin by estimating how much income you'll need in retirement, typically around 70% of your current income. This will help you understand your financial requirements and give you a starting point to create a budget.
Some expenses, like groceries, utilities, and insurance, will likely remain stable during retirement. However, certain costs may be less predictable and based on both individual circumstances and changes in the economy over time.
One of the most significant unknown costs during retirement is healthcare. While everyone will need medical care at some point, the type, duration, and cost can vary wildly. Medicare will cover many expenses, but it's essential to familiarize yourself with potential out-of-pocket costs or supplemental coverage, especially for long-term care. A financial professional can advise you on how to allocate funds effectively to account for potential health-related expenses in later years.
Identifying potential big purchases
Understanding your retirement needs will help you define your priorities and make informed financial decisions. Beyond your fixed needs and potential healthcare considerations you’ll want to identify other potential big purchases based on your individual goals and circumstances. While these will be unique to each person, they can be broken down in several categories:
Consider making necessary renovations or upgrades to your current home. If you plan to stay in your home through your retirement, you’ll want to make sure it suits your potentially changing needs. You might think about adding accessibility features, enhancing energy efficiency, or updating spaces to more modern aesthetics. If you plan to move or downsize, these renovations or upgrades can potentially increase your property value— an investment that can be used to fund other retirement pursuits.
If you are interested in owning a vacation home or rental property, you know this can provide additional income during retirement and serve as a retreat for relaxation. At retirement, some people may choose to sell their current home and make a vacation property a primary residence. However, before making this significant investment, carefully evaluate the potential rental income, maintenance costs, and the overall impact on your financial portfolio.
Pursuing entrepreneurial dreams
While in the thick of your career, you may also dream of starting your own business or investing in a franchise to secure your financial future. While this can be an exciting and fulfilling venture, it's crucial to assess the risks and potential returns thoroughly. Understanding the market for your potential business as well as changing factors such as interest rates for business loans. Consider seeking advice from experienced entrepreneurs or business consultants before taking the leap. With preparation and guidance, entrepreneurial pursuits can offer a chance for creative expression, contribute to your sense of purpose and meaning, and of course, enhance your financial future.
Fulfilling travel and experience goals
Retirement opens the opportunity for you to explore new destinations and fulfill long-held travel dreams. Research and compile a “bucket list” of places and experiences you wish to enjoy during your retirement years. If more adventurous destinations are on your list, think about prioritizing those for earlier in your retirement journey to ensure you are healthy and capable of the demands of the trip. If you have a partner, make sure to enlist them in these conversations so that you can include both your interests and goals.
Family needs and intergenerational concerns
Supporting your children’s or future grandchildren’s education or helping them purchase their first home can be a rewarding use of your resources. A financial professional can guide you on options to help you allocate funds so that you can strike a balance between fulfilling these responsibilities and securing your own financial future.
Another potential familial expense to consider is the possibility of becoming a caregiver for aging parents or other family members. Consider the financial and emotional implications of such responsibilities, discuss with those close to you, and enlist professional guidance to help you plan accordingly.
Evaluating and planning for the financial impact of big purchases
With an understanding of the types of potential big purchases you may encounter and a solid grasp of your individual priorities and goals, you will be able to begin to estimate the costs. Whether on your own or with the help of a professional you will want to research costs and market trends as well as consider potential inflation and interest rate changes.
From there, you can assess your current financial situation. It’s a good idea to regularly review your retirement savings and investments with a financial professional to ensure they align with your retirement goals. A professional can help you plan how to be strategic with your future retirement income, including when to begin drawing from your Social Security benefits or whether to consider part-time work after you retire from your primary career. With these and other options you can help ensure your income matches your needs at different phases.
Strategies and guidance
While your path to retirement and dreams for that phase are uniquely yours, there are important ways to think about and prepare for your future needs and goals. As you think about your dreams, bringing these possibilities to a financial professional can get you the support and expertise needed to realize them.
- Prioritize big purchases based on importance and timeline- once you know what is most important to you can set specific timeframe for each and create a structured savings plan.
- Maximizing retirement contributions- if you have an employer-sponsored retirement, contribute the maximum amount allowed to benefit from potential employer matches and tax advantages. You might also explore Individual Retirement Accounts (IRAs) to further boost your retirement savings and take advantage of potential tax benefits.
- Exploring investment opportunities- A financial professional can guide you on how to diversify your investment profile for growth and stability, as needed as you move through your career and into your retirement years.
- Paying down debts early- If you have high-interest debts, prioritizing their repayment can alleviate financial pressure in retirement.
- Manage risks and uncertainty- Work with a financial professional to design an investment strategy that aligns with your risk tolerance and long-term goals.
- Creating an emergency fund- Set up an emergency fund to cover unexpected expenses and avoid dipping into your retirement savings.
Mid-career individuals need to be proactive in planning for their retirement to help ensure financial security and a fulfilling retirement. By identifying potential big purchases, evaluating the financial impact, and developing a savings strategy, you can achieve your retirement goals and secure your financial future. Seek advice from experienced financial professionals to navigate the complexities of retirement planning and make informed decisions that align with your priorities and aspirations. With careful planning and a clear vision, you can be confident in your financial security as you continue growing through your career and as you look forward to each new phase of life.