Managing Finances to Prepare for Retirement

It’s never too early to plan for retirement. To be able to have a comfortable and secure retirement, it is necessary to create a financial cushion to support it. Making retirement plans means people are aiming to have the chance to relax and enjoy themselves after working hard for years.

This will require reviewing current income sources and future income options. It will also require making the necessary adjustments early so you can achieve the income you want when you retire.

Here are some ways you can manage your finances in preparation for your retirement:

Calculate Potential Retirement Income

Calculating potential retirement income gives you an idea about your disposable income when you retire. While retirement calculators are available online, an old rule of thumb is four percent of your total investments is what you can spend annually during retirement.

Also known as the four percent rule, it shows you how much you can withdraw from your retirement funds every year. The amount depends on the total investments you have when you retire. The four-percent figure reflects the interest and dividends from the investment.

But it may be necessary to make adjustments if there is a downturn in the market. This can have a significant effect on the interest you earn from your investments. Moreover, life expectancy should also be considered since the longer you live, the more funds you will need.

Knowing the potential retirement income allows you to set a target on the investments you need to make to reach the amount when you retire.

Estimate Possible Retirement Expenses

After calculating potential income, you should also estimate possible expenses when you retire. While work-related expenses like commuting and clothing will go down, you can expect medical expenses to go up.

You should also take into account where you’ll live when you retire. The cost of living in New York is not the same as the cost of living in Arizona. So, consider these potential expenses so you’ll know if you can afford to take a long vacation in Hawaii after you retire.

Diversify Investments

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Knowing the potential income and expenses gives you a figure your investments should reach when you retire. Due to this, you shouldn’t put all your eggs in one basket. You should diversify your investments and aim for growth.

Shying away from stocks may keep your investments safe. But if you’re aiming for growth, you should look for a good financial advisor who can help you grow your investments. It’s always better to have a good mix of bonds, stocks, mutual funds suitable for your needs and preference. Making good financial decisions require having a plan and knowing when you want to take a risk.

Fully Use Retirement Accounts

You should also take full advantage of retirement plans available through your employer. For instance, investment options for 401 (k) investment plans are available to AT&T employees. If your company offers similar options, you should take advantage of it while you can.

It will allow you to increase your investments while you’re still working. Moreover, you should also consolidate similar individual retirement accounts (IRAs) under one institution. This allows you to easily manage your investments and give you an idea of the total retirement assets you have.

Check the Retirement Location

As indicated earlier, the place where you’ll retire will have a significant effect on your expenses. So, you should choose the location carefully. Aside from the cost, you should also check if the location has good medical facilities in case you need medical care.

You may want to consider living in a small town and away from the big city to reduce expenses. Another option is living in another country. Several countries accept retiring foreign nationals and these countries offer a lower cost of living compared to their home countries.

Managing finances early gives you the chance to enjoy a comfortable life when you retire in the future.

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