Do you feel prepared for retirement? According to a recent GOBankingRates survey, over 66% of American adults fear running out of money after retirement. Nearly 47% are worried that social security will be cut or abolished completely and another 21% are worried that they will not be able to find a part-time job for extra income.
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With rising inflation and today’s economic turmoil, is it still possible to plan a luxury retirement? Financial experts say yes, it is, if you diligently follow certain steps.
Set your goals in advance
What does a luxury pension look like for you? For some, it might mean traveling to London for two weeks and staying in a five-star hotel once or twice a year. For others, it may feel like they are living in a more expensive area so they can be close to their grandchildren.
“You get a very clear picture of how you want to enjoy your time when you retire,” said David Edmisten, a certified financial planner and founder of Next Phase Financial Planning. “Add up what this amazing lifestyle will cost. You can create an annual spending amount and divide it by 12 to get your estimated monthly retirement costs.”
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Decide how much you need to save each month
It is very likely that Social Security and pensions will not cover all of your financial needs in retirement, so saving on your own is also important. Whether you want to spend $ 10,000 or $ 100,000 a month in retirement, a financial advisor can help you determine how much you need to save by taking into account rate of return, time, taxes, and inflation.
In general, if you plan to retire at age 65, Damian Rothermel – a certified financial planner at Rothermel Financial Services – recommends that you allocate at least 10% of your income to your workplace retirement account. He considers putting in even more if your employer doesn’t offer matching services or you are self-employed.
If your idea of a luxury retirement is more lavish, Edmisten recommends saving 20% to 30% of your income.
Start investing in retirement accounts with tax benefits
The earlier you start contributing to a retirement account, the better.
“Preparing for retirement means maximizing and extending your money through tax-facilitated retirement accounts, leveraging your employer’s 401 (k) correspondence, and allocating your money wisely,” said Danielle Miura, certified financial planner and founder of Spark Financials.
Miura also recommends contributing to a Health Savings Account (HSA). This type of high-deductibility plan saves you money before tax to pay for your eligible healthcare costs. Later in retirement, you can also use the funds for general living expenses.
Don’t forget about inflation
According to the aforementioned GOBankingRates survey, rising inflation is forcing over 20% of American adults to delay their retirement plans, nearly 30% to try to save more, and another 10% to change their investment strategies. .
Inflation can have a twofold impact on retirement, Edmisten said. The higher the inflation rate, the more you can expect to pay for living expenses and retirement services.
“Higher inflation rates can also reduce the net return on investment,” he said. “This means that resources may not grow as much as expected.”
To combat the effects of rising inflation, consider contributing more to growth-oriented businesses and fixed-income investments with adjustable rates.
Remember to account for medical bills
Thanks to inflation, you can expect the cost of medical bills to increase by the time you retire. Unexpectedly high medical bills often prevent people from retiring on their own terms, said Ari Parker, a chiefly licensed Medicare lawyer and consultant at the Chapter.
Advise people to research health plans beforehand to see what best fits their budget and needs.
“Those who plan ahead can expect to save hundreds of dollars a year, especially when they have the doctors they want to see, the prescriptions they need to take and their life choices on the net,” he said. “The savings people find on recurring expenses by avoiding unexpected medical bills can be a big contributor to their discretionary savings account.”
Build up a cash reserve before retiring
In addition to your retirement investments, Edmisten recommends saving 12 to 24 months of living expenses in a cash account before retiring.
“This will allow you to have all the funds you need to start your fantastic retirement journey without having to worry about the stock market or other factors that skew your plans,” he said.
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This article originally appeared on GOBankingRates.com: 6 Ways to Plan a Luxury Retirement Ahead
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