Crafting Your Ideal Retirement: Navigating the Path to Financial Freedom
By Jeremy Reif, CRPS
Are you worried about saving enough for your retirement? We all want to spend our golden years stress-free, enjoying the things we love. But to achieve that, we need to crack the retirement code and determine how much money we need to save each month to reach our financial goals.
First, let’s assess your retirement dreams. Picture your ideal lifestyle. What are the activities you want to pursue and the places you want to explore? What hobbies will keep you busy? Will you travel for relaxation, become a snowbird, or to travel just to see your grandchildren? Understanding your dreams will help you set realistic goals for retirement.
Next, consider your life expectancy. In the last few decades, there have been major advances in the healthcare system, and we’re living longer than ever before. Recent studies say the average retirement length is 25 years. So, plan for a retirement that could last well into your 80s or even your 90s. This also means that investment accounts need to last longer than previous generations.
Now, let’s talk about numbers. To calculate your retirement savings target, you’ll need to account for several factors. Many should consider doing a full-blown financial plan to see if there are any hidden items that could blow up your retirement plans or goals. There are several hidden things that can affect retirement that this article does not delve into. The basics for understanding retirement and what is needed are your current age, desired retirement age, and expected annual expenses are. These are crucial in determining your monthly savings target.
Factor in any other income sources you may have, such as social security or pension plans. This will help you estimate how much you need to save each month to bridge the gap between your expenses and income.
It’s essential to consider inflation too. Prices will inevitably rise over time. Ensure your savings keep pace with inflation to maintain your desired lifestyle. This can be done by saving more than enough in the first place or by putting together a plan on how to invest the money to grow or keep pace with inflation.
Remember, time is your ally. Starting early allows your investments to grow and compound over time, translating into a more secure retirement.
Lastly, consider getting professional advice. Financial advisors can tailor a plan to your specific needs and help you make the most of your savings. Coordinate these efforts with your CPA to minimize your current and future taxes. Remember, retirement accounts like traditional IRAs or 401ks are tax-deferred and when a distribution is taken, this counts towards your taxable income for the year the distribution was made.
To crack the retirement code, create a retirement plan custom-tailored to you. Take control of your financial future and achieve your retirement goals.
Sources:
https://www.tiaa.org/content/dam/tiaa/institute/pdf/insights-report/2023-01/longevity_literacy_financial_literacy_and_retirement_readiness.pdf