In many ways retirement planning hasn’t changed much over the years – you work, save and eventually retire. But there are a few key differences today that make saving and investing for retirement different than it was even 20 years ago. For one, life expectancy has risen, meaning that your savings need to last longer. At the same time, interest rates on bonds have fallen, making it harder to get a reasonable return without taking too much risk with your retirement savings.
Successful retirement planning requires careful long-term retirement planning halifax saving, wise investments and a willingness to look at your finances. It also helps to have a plan to deal with unexpected expenses and emergencies. And that’s why it is critical to have a separate emergency account with enough money to cover about six months of living expenses. It’s also helpful to have a set amount of funds that you automatically transfer from your checking account into your retirement investments on the same day every month — perhaps when you get paid. This way, you don’t have to worry about forgetting to save and missing opportunities.
Another important factor to consider is the cost of healthcare, which continues to increase at an alarming rate. A good retirement plan should include some funds to help pay for health insurance or other medical costs that might arise in your later years.
Finally, it’s worth thinking about the income tax implications of your retirement savings and investment accounts. Employer-sponsored retirement accounts (401k, pensions) and individual retirement accounts are typically tax-deferred, but you’ll pay taxes on withdrawals from those accounts in retirement. In addition, you may owe capital gains tax on any stocks you sell in retirement.
These factors make retirement planning more complex than ever, and it’s critical that you have a clear understanding of your financial situation before retiring. A financial professional can help you determine the optimal asset allocation, estimate when you can retire and develop a retirement income strategy.
For those who prefer to do the work on their own, there are a number of online tools available to help. Some of these tools are more sophisticated than others, but they all can give you a snapshot of your retirement readiness. One of my favorites is New Retirement, which allows users to model just about every aspect of their retirement (e.g., social security claiming strategies, medicare coverage, annuities). It has a fairly steep learning curve and a price tag of $199 per year, but it’s definitely worth trying out if you want to get serious about your retirement planning. You can use it in conjunction with a robo-advisor such as MoneyGuidePro or on its own. In either case, be sure to run a Monte Carlo simulation to stress test your plan and find out how likely it is to meet your spending goals.