Retirement might be something that a lot of people are looking forward to, but not everyone is prepared for it. Others look at it as something that is only for the privileged. What is retirement, and how could we prepare for it?
If you have come to the point in your life when you want to stop working and enjoy the remaining years of your life, that’s when you retire. In the United States of America, the ideal age for you to retire is 65. However, if you want to retire early, others are considering early retirement at the age of 60 (see here).
To prepare for it, you must have a retirement plan. This is when you have financial strategies of investing, saving, and distributing your money wisely to sustain you until you leave this earth.
Why Is It Important That We Plan For It?
As mentioned, you will stop working when you retire. This means you will no longer have a monthly income. This is the reason why we should prepare for this stage of our life, for us to sustain our needs, especially when it comes to our finances if we no longer have the monthly income we used to have when we were still working. In short, for us to still have money even without a job.
A more detailed explanation of the importance of retirement planning are as follows:
1. To Avoid Being A Burden To Your Children
Some of the people’s mindset is that you take care of your child so they will take care of you when you grow old. That is right, and there is nothing wrong with that. However, please take note that when your children will grow up as an adult, they also have their financial responsibilities and struggles.
If you have planned everything all ready for the day that you will retire, it means your children do not need to worry. You will be ready for any medical cost, possible long-term care cost, your daily needs, etc. That would make your children happy and stress-free, which also would make you happier, for sure.
2. Stress-Free Living, Good Health!
One of the most common things that stress people out is a financial struggle. If you do not have enough finances to pay for your bills, buy your needs and wants, etc., you feel stressed. So when the time comes that you will retire already and you have enough money saved for it or if you invested for it, then you will have no worries at all.
Although even planning retirement is sometimes stressful, there are ways to avoid it (link: https://www.seattletimes.com/sponsored/stress-free-retirement-planning-tips-for-the-new-year/). On the other hand, if you did not prepare for it, you will have to worry about your finances which is stressful and could be a cause of illnesses, or worse, you may even consider continuing working at that old age so that you will still have the money to live.
3. You Could Have Early Retirement
Retiring before the age of 65 is a good decision if you have it planned. If you have invested enough and saved enough to sustain your needs, even if you retire early, then you would have a chance to chill out and enjoy life without work earlier.
The rest of the importance of planning your retirement includes avoiding running out of money. Also, you may continue giving gifts to your children and grandchildren even without work, be wise in dealing with taxes, etc.
Now that you have seen how important planning retirement is, we will now be talking deeper about it. You have options to choose from for your retirement investments according to your preference. Following are some retirement plans to consider:
More formally known as defined benefit (DB) plans, pensions are considered one of the easiest plans when you retire. However, the most endangered plan of all because not all employers are offering this. This is because pensions are funded by employers, where they provide monthly benefits to their employees at retirement. This replaces a percentage of an employee’s pay depending on your tenure in the company and your salary.
However, if you choose this plan, you have to be very wise in choosing a company where you can stay longer, or if possible, until your age of retirement because, as mentioned, one of the bases is your number of years of staying in the company.
2. Guaranteed Income Annuities (GIAs)
These are pensions that can be bought by an individual and not being offered by any company. When we say annuities, these are financial products where you will get paid by the financial institutions you invested your money to. These could be used as an income for retirees.
However, not many people are investing with GIAs. They prefer the other type of annuity, which is the deferred annuity. This type of annuity does not pay right after the investment. Instead, it gives a specific period or age when you will start receiving pay already.
3. Profit-Sharing Plans
Some companies are offering this type of plan to their employees as a strategy to make them perform better because they have a share in the company’s profits. However, for this type of plan, you will not get full assurance as to how much the company will contribute to you every year and how the investment will go. This is something that is not guaranteed for long-term investments, but this could be paired with another retirement plan.
There are a lot of things that you need to know about retirement (read more), and better check on it as soon as possible.
4. Cash-Value Life Insurance Plan
This is insurance where you can get a death benefit, but you could still build cash value while you are alive and support your retirement needs. However, this is not for everyone. This is ideal for those people who have already maxed out other retirement-saving options. Usually, financially able individuals are getting this plan.
The rest of the other plans you might want to check are the following:
- Defined contribution plans
- IRA plans
- Solo 401(k) plan
- The Federal Government plan
- Cash balance plans
- Non-qualified deferred compensation plans (NQDC)
All in all, planning ahead can go a long way. The future may still feel so far away right now, but it is best to start early!
First to start; first to finish.