As retirement approaches, the importance of such tools as pension plans, savings accounts and Social Security sets in. Whether you have two months or 20 years before your final day at the office, devising a solid plan for how you will use your pension and other resources is key to your long-term financial health.
Although there?s much you can (and should) do to prepare for retirement, many factors play into the best outcome for a savvy professional. In the months and years leading up to retirement, you need to meet regularly with a financial planner to discuss how you plan to maintain an income flow after retirement and where it will come from.
Are you prepared for the changes to your income and lifestyle that might arrive with retirement?
When it comes to enjoying a long and prosperous retirement, understanding how much income you can expect ? and from where ? is crucial. As you begin to craft a retirement plan, you?ll want to study all your expected and potential sources of income, including:
?Social Security: The amount you and/or your spouse will receive depends on the age at which you begin to accept payments, as well as how much you?ve paid into the system. In addition, when one spouse dies, the surviving individual will receive the larger of the two spouses? amounts.
?Pension(s): Learn how much and at what age you and your spouse can expect to receive your pensions. Don?t forget to take into account survivor benefits, which often allow spouses to accept a lump sum or annuity for the remaining funds.
?Annuities: Calculate how much you plan to receive each year from other annual funds, and whether they will begin to pay out after a specific date or age.
?Wages: If you plan to work part-time after retirement, be aware that Social Security imposes a maximum earnings limit. If you exceed this threshold, the government will reduce your benefit payment.
?Additional income. From rental properties to other regular or fixed-income sources, make sure you incorporate everything else into your retirement plan. This can also include one-time amounts, such as inheritances, property sales or life insurance lump sums.
CREATING A BUDGET BASED ON EXPECTED INCOME
?Your living expenses as a retiree will depend largely on how similarly you plan on living to how you live now,? according to the Pensions Advisory Service. If you intend to remain in the same home (with or without a mortgage), engage in frequent travel or pursue the same purchasing habits you had before retiring, you?ll need to account for these in how much you save.
However, if you wish to live more frugally ? or you anticipate a level of retirement income that precludes your previous lifestyle ? creating a budget is crucial to ensuring your financial viability for as long as necessary.
According to USA Today, a realistic assessment of your retirement budget should ?start with your real needs? and include costs such as housing, utilities, medical expenses and food. Additional costs such as unexpected health care bills, college tuition for children, and caring for relatives may also be factors for many retirees.
WORKING WITH A PROFESSIONAL FINANCIAL PLANNER
Navigating the complicated process of planning for retirement doesn?t have to entail a massive amount of time or money ? especially if you work with a financial expert. These professionals have years of experience assisting clients with various incomes, circumstances and retirement goals.
Your financial planner will collaborate with you to manage the many facets of your retirement preparation, including:
?Identifying the right accounts. If you are self-employed or looking to put away additional pension savings, a financial planner can help you identify which products are best suited to your situation and objectives. He can also assist with the process of transferring a pension, should such a move become necessary.
?Ensuring compliance. Tax laws related to retirement income can be rigid and complex, and the average citizen might have difficulty identifying or understanding them all. A financial planner?s extensive training and experience in these regulations makes him or her able to guide you toward lawful and rewarding practices.
?Building a plan. With so many moving parts in the retirement process, taking an informed and organized approach often means consulting a professional. A financial planner will work with you every step of the journey, and ask the essential questions to help you determine whether your income and budget will allow you to maintain your desired quality of life for your remaining years.
Retirement can be an exciting time, and most people look forward to it their entire lives. Although changes to income and expenses may lead to confusion or anxiety, millions of people make a successful transition from work to retirement every year.
With thorough preparation and the guidance of an experienced financial advisor, you should continue to flourish financially for many years to come.