8 Tips to Help Make Your Retirement Plan Successful

To live comfortably in the golden years of your life, you need to plan for retirement well in advance. Not only do you require enough funds to last your retirement but you also need to plan your taxes, withdrawals from your retirement accounts, estate, plus set up an emergency fund, and more. If you start saving in your 20s or 30s, you may have a solid 30 to 40-year window to save funds till you retire. However, this window can be cut short if you plan to retire early or start saving much later in life like in your 40s. If so, you would need to save more aggressively to ensure you have sufficient funds to last your post-retirement years.

You do not need to be an expert in financial matters to get your retirement planning underway. Nowadays, you can find quality information from YouTube, books, blogs, financial experts, and more on how to best prepare for retirement. Do a Google search on ‘retirement planning tips’ and more than 11.5 million results will pop up in less than a second. It can be overwhelming. But you must devise a proper retirement plan to attain your financial goals. In addition, you must be consistent when it comes to saving and investing your income. You can make use of these retirement planning tips to ensure that you are on the right track, plan ahead, monitor your progress, and revise your plans based on your changing financial needs and lifestyle. You can also consult a professional financial advisor who can suggest tips for making your retirement planning successful and help build a significant retirement corpus.

In this article, we will discuss some retirement planning tips that will help you live comfortably in retirement:

1. Consider options apart from Social Security benefits:

On average, Social Security benefits can replace about 40% of your earnings, however, due to the diminishing value of the Social Security benefits check, you should not solely rely on it and explore different avenues of investment for retirement planning. The money contributed by you to the Social Security system is primarily invested in bonds and special U.S. government securities that earn interest and are backed by the full faith and credit of the U.S. government. When interest rates are high or climbing, your money compounds more, however, with a fall in the interest rates the value of your Social Security check would reduce. This has been true for the past few years with interest rates remaining consistently low which has, in turn, impacted the overall Social Security program. This situation has been exacerbated by the increase in life expectancy due to which your Social Security benefits pool is unable to cover you for a lifetime. You can counteract this problem by delaying claiming the benefits that would allow you to increase the value of your monthly check. With each passing year that you forego claiming your Benefits, the value of your monthly Social Security benefits checks increases considerably. However, if you claim your benefits before reaching your full retirement age (FRA), the value of your monthly check will be reduced significantly. For example, if you claim Social Security at 62 but your FRA is 66, your monthly Social Security benefits would be reduced by 25%. Do make a note of this at the time of claiming your benefit.

2. Max out your 401k contributions:

The 401k is a popular tax-advantaged retirement savings account that can help you save for retirement and build a significant retirement corpus. It is an employer-sponsored retirement plan offered by a company to its workers. The main benefit of a 401k is the employer’s match where the company matches the employees’ contributions up to a certain limit allowing you to save more. The contribution limits are set by the Internal Revenue Services (IRS) and revised from time to time. For 2022, the 401k contribution limits are as follows:

• $20,500 for those aged below 50
• $20,500 and an additional catch-up contribution of $6,500 for those aged 50 or up, bringing the total to $27,000

It is advised you max out your contributions as the more you contribute, the more you would benefit from employer’s match too. It’s a win-win situation for you.

Moreover, there are two kinds of 401ks - a traditional and a Roth account. In a traditional 401k, you make contributions from your pre-tax income whereas in a Roth 401k, you make contributions from your after-tax dollars. This means in the former, your taxable income is reduced but withdrawals are taxed and in the latter, you receive no tax deduction but you can make tax-free withdrawals in retirement. Roth 401ks are a better proposition for those retirees who expect to be in a higher tax bracket in retirement.

Further, the IRS mandates that traditional 401(k) account owners must take mandatory required minimum distributions (RMDs) once they turn 72. Roth 401k owners are exempt from this stipulation. You can take professional help to choose investments for your 401k such as bonds, mutual funds, exchange-traded funds (ETFs), stocks, target date funds, etc., as per your needs and financial goals.

3. Invest in an Individual Retirement Account (IRA) to boost your retirement fund:

Other than a 401k, an IRA is another type of tax-advantaged retirement plan available to folks looking to save for retirement. An IRA can be opened by a bank, mutual fund house, broker, credit union, or a life insurance company as well. An IRA can be beneficial for those who do not own a 401k and can be opened by 401k owners as well. There are several kinds of IRAs, however, the most popular among them are a traditional and Roth IRA. The contribution limits for both traditional and Roth IRA are the same. For 2022, the contributions limits are as follows:

Similar to 401ks, you must try and max out your IRA contributions. Herein, you have a number of investment options available to you to choose from like money market accounts, mutual funds, ETFs, certificates of deposits, stocks, etc. Select any among them as per your needs and financial goals.  

4. Take into account healthcare expenses:

Healthcare expenses form a chunk of your expenses in retirement due to advancing age. With rising medical inflation, you may find it challenging to cover the costs of basic medical procedures. You can cover your healthcare expenses by investing in a good health insurance plan that takes care of your long-term care insurance, critical illnesses, etc., allowing you to focus on your health rather than worrying about hospital bills. You can also invest in a Health Savings Account (HSA) i.e. a tax-advantaged account that can help you save for qualified medical expenses in retirement. These expenses include medical costs, prescription drugs, dental expenses, vision care, etc. Both you and your employer can contribute to your HSA. For 2022, the contribution limit for an individual is $3,650 and $7,300 for a family. In addition, individuals aged 55 or above can make an additional catch-up contribution of $1,000 to their HSAs.

5. Start planning for retirement from a young age:

It takes a considerable amount of time to build a significant retirement corpus and save for retirement. Hence, it is critical that one starts saving from a young age. This allows you to take advantage of the power of compounding as your money grows over time generating better returns for you. Another advantage of starting retirement planning when you are young is that you have ample time to attain your financial goals. You can break down your goals into smaller, achievable ones and work toward them at your own pace. This allows you to live peacefully without taking on unnecessary stress.

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6. Keep a keen eye on your expenses and budget and track them accordingly:

You have to be financially disciplined when it comes to retirement planning. One way to ensure you are on track to achieving your goals is sticking to a budget and keeping track of your essential and non-essential expenses. Doing so ensures that you optimally use your money and do not waste it on unnecessary purchases. You may be unable to eliminate your non-discretionary expenses but can still work toward reducing them. For example, instead of taking a cab to work, you can take a bus or do a carpool to cut down your commuting expenses. When it comes to reducing discretionary expenses, you may need to control your impulses and not get swayed by peer pressure to maintain a certain lifestyle. Track your expenses to get a clearer picture of your expenses and find out where you can lower your expenses. Doing so will allow you to prioritize your needs over wants and plan your expenses accordingly in a more efficient manner.

7. Take steps to counter inflation in your financial planning:

The inflation rate is 8.5% at present as per the US Department of Labor. Earlier in July, it climbed to 9.1%, the highest it has ever been in the past 40 years. This has largely been caused by the pandemic and the Ukraine-Russia war. That said, inflation can be fueled because of various reasons. Nevertheless, it is critical that you plan for such unexpected events at the time of creating a retirement plan. Keep a buffer for inflation and make use of an inflation calculator to get a fair idea of how much you need to save for the future to live comfortably in retirement. Also, invest in instruments that will allow you to generate inflation-beating returns such as stocks, ETFs, equity mutual funds, etc., to enable you to build a substantial retirement fund.

8. Seek financial advice from a professional financial advisor:

Though with a plethora of information available online, you may not either have sufficient time to build financial knowledge or may lack the financial acumen to do so. In such situations, it is best you reach out to a professional who can help guide you through different market conditions such as market fluctuations, recession, inflation, new investment opportunities, etc. The advisor can also help create a retirement plan for you based on your risk tolerance, and short-term and long–term financial goals. Based on your needs, you can either seek professional advice from time to time or consult on a more regular basis with your financial advisor.  

To conclude

Retirement planning can be challenging especially if you do not possess the requisite financial knowledge to make decisions. However, with time and the right guidance, you can work toward understanding the intricacies of your plan. Refer to financial journals, read books on financial planning, and consult financial experts to improve your financial acumen. Stay consistent and ensure you invest your money in the right instruments (such as 401ks, IRAs, and HSAs) that not only help you generate inflation-beating returns but also offer tax advantages to help build a significant retirement corpus. Doing so will enable you to reach your retirement goals in time when you are ready to hang up your boots.

You may also consult with a professional financial advisor to receive appropriate guidance and tips on how to make your retirement planning successful and achieve your financial goals. Use the free advisor match service to connect with 1-3 financial advisors based on your financial requirements. All you need to do is answer a few simple questions about yourself and the match tool will find advisors that match your financial needs.