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5 Ways To Financially Prepare For Retirement

Becoming financially secure as early as possible is perhaps the best achievement in one’s lifetime.

While ‘money can’t buy happiness’ remains a popular quote today, it’s worth admitting that many would disagree, especially people who have to juggle their day-to-day life with limited finances.

You spend most of your life working to earn money and meet your short- and long-term goals.

However, you can’t be employed forever, and you’ll have to be ready when you reduce your work hours and eventually stop.

Therefore, you should prepare for your retirement to live out the rest of your life with financial security and stability.

Running The Retirement Numbers

To start your retirement preparation, it’s crucial to have a bigger picture of how retirement is going for many employees. According to the 19th Annual Transamerica Retirement Survey, 63% of workers are highly confident that they can retire with a comfortable lifestyle, and 54% of them also agree that they’re building a nest egg enough for their retirement.

What can you do during retirement? From the same survey, employees stated traveling (67%), spending time with family and friends (57%), and pursuing hobbies (48%) as their retirement dreams.

Individuals who have successfully sorted out their retirement have one thing in common: they research, plan, and strategize well. Few things are more beneficial than having the right knowledge and mindset for retirement, especially when you’re reading relevant retirement planning guides and applying the lessons to your own life.

In light of these numbers, it’s time to financially prepare for your own retirement in the following ways:

1. Assess Your Retirement Needs

People face different circumstances in life. Your retirement choices will depend on numerous factors, including your retirement age, lifestyle, health condition, location, number of dependents, and the like.

Before starting your retirement planning, you should first determine your retirement needs to set your goals as accurately as possible.

How much should your retirement savings be? Many individuals use their annual income to compute for their retirement savings.

However, it’s worth looking more into how much you regularly spend in a year, a.k.a your yearly spending. Take a look at this guide to calculate your retirement saving needs.

2. Find Sources of Passive Income

Retirement is the time of your life reserved for various activities except working, but it doesn’t mean you should stop earning money. Finding many sources of passive income is a piece of financial advice that both retirees and non-retirees should strive to follow.

By making money with minimal active effort, you won’t have to push yourself to work in exchange for monetary compensation.

Here are the best ways to find a source of passive income starting today and until your retirement:

  • Start a business in a niche that you’re experienced in and passionate about.
  • Explore real estate investing.
  • Learn about earning income or dividends from investments such as stocks, bonds, and mutual funds.
  • Explore your hobbies and see if they can be profitable. For instance, writing, photography, and blogging can help you earn money while enjoying what you’re doing.
  • If your number of dependents has decreased, you can consider downsizing and renting out your current home.

3. Pay Off Your Debts

Everyone who has ever had debts knows how dreadful they are. As you approach your retirement age, it’s crucial to have all your debts paid off as it’s the first step to being financially free. By paying off all your debts, you have one less thing to worry about, given that you could be earning less than before.

When dealing with your debts, start with debts with high interests first. Then, once your debt interest rates are lower than your investment returns, you can proceed with a mix of debt repayments such as your credit card debt, personal loans, car loans, or mortgage loans before starting any investments.

4. Contribute To Your Employer’s Retirement Savings Plan

Fortunately, you’re not doing all the saving yourself. Many employers offer help for their workers to prepare for retirement. If you’re a regular employee with more than 12 months of service, you’re eligible to apply for a retirement savings plan offered by your employer.

Employer-sponsored plans are beneficial for employees preparing their retirement finances as they provide tax advantages and relatively low costs. Currently, the 401(k) and Health Savings Account (HSA) plans are the most prominent types of employer-sponsored plans.

The automatic deductions from your salary make it easier and more convenient for you to contribute and not miss your payments. While your progress with this retirement plan may seem small in the short term, the tax deferrals and compounding interest will make it worthwhile in the long run.

5. Consider Opening an IRA

Besides employer-issued retirement plans, you can also build your own retirement fund through an Individual Retirement Account (IRA). An IRA is also a tax-advantaged retirement savings account, but compared to 401(k) and HSA plans, they’re not deducted from your salary.

Moreover, IRAs are classified into four main types:

  • Traditional IRA: Tax-deductible
  • Roth IRA: Not tax-deductible
  • Simplified Employee Pension (SEP) IRA: For self-employed individuals
  • Savings Incentive Match Plan For Employees (SIMPLE) IRA: For self-employed individuals and small businesses

When You Should Retire: Final Thoughts

Retirement planning is a lifelong process. But, at what age should you choose to retire? This is one of the biggest questions regarding retirement, but to be honest, there’s no black-and-white answer to this question.

However, one thing’s for sure—working on your financial freedom and security as early as you can guarantee a better retirement future.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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