Retirement planning can entail different things at different junctures of life. When you are young, it may involve investing in stocks, mutual funds, 401ks, and individual retirement accounts (IRA). Over time, this can change to include real estate and alternative investments. Eventually, it can require switching to safe options like bonds. No matter your age, there are some specific things you can do or instruments you can invest in to financially secure your retirement in the future. While retirement planning should begin early in life, ideally in your 20s or early 30s, getting to it at a later stage in life is equally critical.
Every decade of your life can require a unique approach. But the years right before retirement can be foundational in more ways than one. The right strategies at this phase can provide you with a comfortable and financially secure post-retirement life. However, any wrong moves can hamper your financial protection and be a cause of concern and stress for many years to come.
Typically, it can help you to keep a retirement planning timeline from a young age and stick to it. If you wish to build a significant retirement corpus and secure your retirement years, reach out to a professional financial advisor who can guide you on the same.
If you are in your 50s, nearing 55, or over 55, here are some things you can do to make sure you have enough funds in retirement:
1. Get rid of debt:
Retirement saddled with debt can be a troublesome combination. So, try to avoid taking on new debt in your 50s. If you already have some debt from previous years, you must try to get rid of it as soon as you can. The high-interest rate credit cards or loans can severely hamper your future financial security. It can come in the way of your financial goals and force you to lower your savings rate. Typically, financial experts recommend following the 20 – 30 – 50 rule, where 50% of your salary is spent on your essential needs like gas, food, clothing, etc., 30% is spent on your wants like travel, dining out, etc., and the remaining 20% is spent on savings and investments. In the case of most people, when their debt liabilities increase, they tend to lower their savings from 20% to accommodate their interest payments. This can be a tricky approach to follow as it hinders their overall growth and forces them to stall their progress. The years from 55 to the age you retire can be your last chance to make up for any shortfalls in your retirement corpus. If you are falling short, have suffered from unexpected losses, have had to cater to financial emergencies, or are bearing the brunt of inflation, as in the case of most retirement portfolios right now, these years can be highly crucial for you. Bringing debt to this equation can be detrimental. It would force you to shift your focus from the future to the present, and instead of thinking about saving for the future, you would be concerned about clearing your present loans and any other liabilities. Therefore, try to avoid taking on any new loans. If you have any ongoing loans, your aim should be to settle them at the earliest.
2. Plan your withdrawals:
At the age of 55, you are pretty close to retirement. Assuming that most people retire in their 60s, this can be an excellent time to start planning your withdrawals. In this regard, you can keep in mind a few things. The first thing is to know the withdrawal rules for each of your investments and savings instruments. For instance, if you invest in a traditional 401k or IRA, you would have mandatory withdrawals from the age of 72. This means that whether or not you actually need the money, you will have to make the withdrawal nevertheless or pay the penalty to the Internal Revenue Services (IRS). On the other hand, Roth accounts can be left as it is if you do not wish to take out your money. There is no penalty, and you can leave these accounts untouched for your future generations in your estate plan. The second thing is to know and understand the taxability of your accounts. Your mutual funds or stocks will attract capital gains, so you would need to plan their withdrawal in a manner that triggers the least tax. Additionally, it is essential to know that traditional accounts will be taxed in retirement. However, Roth accounts would allow tax-free withdrawals. Knowing these rules is vital to understanding your actual financial standing and liquidity in retirement. Moreover, if you are planning to convert to the Roth IRA, as many people do before retirement, you must understand that there is a five-year rule that inhibits you from withdrawing money for at least five years from the date of the conversion. So, if you convert to a Roth IRA at the age of 58 and plan to retire at 60, you would not be able to withdraw your money without incurring a penalty of 10% even though you are above the 59.5 years limit.
3. Use Social Security benefits wisely:
Social Security benefits will form a significant part of your retirement income post-retirement. However, the time to make withdrawals will determine the value of your paychecks to a great extent. Typically, you can withdraw your Social Security benefits check from the age of 62. However, delaying it can help you increase the amount for every check. For instance, waiting till your full retirement age is highly advised if you want to receive the full monthly benefit. The full retirement age is decided as per your year of birth. Here’s a table to explain the same:
| Year | Full retirement age |
| 1937 or earlier | 65 years |
| 1938 | 65 years and 2 months |
| 1939 | 65 years and 4 months |
| 1940 | 65 years and 6 months |
| 1941 | 65 years and 8 months |
| 1942 | 65 years and 10 months |
| 1943–1954 | 66 years |
| 1955 | 66 years and 2 months |
| 1956 | 66 years and 4 months |
| 1957 | 66 years and 6 months |
| 1958 | 66 years and 8 months |
| 1959 | 66 years and 10 months |
| 1960 and after | 67 |
If you can delay claiming your benefit and wait until the age of 70, you can get an extra 8% per year or 132% in total. There is no benefit to claiming the check after 70. So, the maximum you can plan to delay can be till the age of 70. Understand the impact of late Social Security withdrawals as it can help you plan the withdrawal of your other investments. For instance, you can plan for other investments that can keep you afloat in your initial years of retirement if you wish to delay your Social Security benefits. These decisions can be made in your late 50s to avoid confusion or hasty decisions later.
4. Start estate planning:
If you have not done this already, now can be the right time to pay attention to this. Estate planning is one of the most important components of retirement planning. It will determine how your money is used in your absence and whether or not your family members can live a financially secure life after you. 55 and beyond is a critical stage as far as health is concerned. Most age-related issues crop up at this time. Therefore, being prepared is essential. Make sure you have a will in place that states the distribution of your assets among your spouse and children. Additionally, setting up a trust for a minor child or a differently abled child can be crucial. Trusts can be set up for others as well. In fact, they are a great tool to control how your money is used or spent in your absence. Further, you can set up health directives and create a power of attorney. In the case of an ailment where you are not able to make decisions, these estate planning documents can act on your behalf and ensure that things are carried out according to your wishes.
What age should you start planning for retirement?
If you are wondering when should you plan for retirement, the correct answer would be anywhere in your 20s or early 30s. This can give you the longest investment horizon to work out your financial goals and achieve financial freedom. The longer the investment term, the more your money can compound, the less you need to worry about fulfilling your dreams, and the less burdened you feel at every step of the way. Moreover, getting an early start in life offers you room to experiment in investing too. This can sometimes work in your favor with unexpected financial gains. For instance, for the ones profiting from cryptocurrencies, the element of risk was considerably high. However, those who had age on their side were more at ease with taking on this risk. As a result, they benefited with enormous gains. While high risk is not always the answer to high returns, it can be instrumental in some cases. And even though you do not necessarily have to invest in highly volatile instruments like cryptocurrencies, even the regular high-risk options like stocks, equity mutual funds, etc., can deliver good returns over a long investment term. So, retirement planning should begin early in life.
Having said this, if you did not start saving or investing early, you could undertake this responsibility at a later stage. If you start retirement planning in your late 30s or 40s, you can try investing in relatively aggressive options or increase your investment budget to make up for the lost time. You can also limit your debt and prioritize your future needs over your present wants. This can be hard and frugal living may not be for everyone. However, some of these measures can be essential and adopting them can be advised.
You can also consider hiring a financial advisor if you think you are late to retirement planning. Financial advisors are professionals, so the further possibility of trial and error is removed. They can help you make the most of the limited time you have left and recommend the right strategies to move forward toward a financially safe retirement. This ensures that you do not waste any more time and dive straight into suitable measures. Financial advisors can also be helpful with additional components of retirement planning, such as avoiding debt, saving for health-related expenses with health savings accounts, health insurance, general savings, etc., estate planning, retirement withdrawals, tax planning, and more. So, you can never go wrong with hiring one.
To conclude
If you are still confused about when should you start planning for retirement, the answer is now. There can never be a better time to start planning for your future than the present. Delaying or postponing retirement planning can have no considerable benefits. In fact, they only have drawbacks. It puts unnecessary pressure on you and forces you to use extreme strategies or act out of panic. So, try to start early, follow a balanced approach, and above all, stay consistent in financial planning. If you start saving at the age of 25 but fail to keep up through the years, you will likely see little progress.
For further information on retirement strategies that could suit your unique financial needs, visit Dash Investments or email me directly at dash@dashinvestments.com.
Sincerely,
Jonathan Dash
Founder and President
Email: info@dashinvestments.com