Define How Much Do I Need to Retire

There comes this moment when one is no longer a part of the workforce and doesn’t have to worry about job applications. That period is called ‘retirement.’ Whether you’re done with career resources or want to keep those creative juices flowing, think of retirement. The truth is it’s never too early to think about getting old. The more you save, the better you’ll feel. The earlier you start saving, the more you’ll have.

If you don’t speak the language of numbers, check the article below to learn everything about retirement savings.

What is a Retirement Savings Plan?

Why do you need to think of retirement if you’ve already taken the greatest career path or plan to take it after finishing your college studies? Sure, you can find resume writing professionals and contact the best ResumeService24 to craft a winning resume. But the idea of the retirement savings plan is not simply earning money but also accumulating it. How do both differ? Well, accumulating money requires some economic knowledge of budget planning.

financial plan for retirement

Knowing how to accumulate money means knowing how to multiply it. Your saving strategy will depend on your job and lifestyle specifics. To define the one that will suit you the most, get professional help or take a financial literacy course.

Depending on your retirement goals, there are tons of savings plans. Let’s check the most popular of them below.

Types of Retirement Savings Plans

There are traditional and non-traditional retirement accounts or retirement plans.

Traditional plans suggest tax advantages – you pay taxes only while withdrawing the money from the account.  Meanwhile, the non-traditional plans require you to pre-tax the investments.

There are also defined benefit plans and defined contribution plans. In the first case, employers invest in the pensions and 401(k) of their employees. The second option is the partial investment of the employee’s paycheck. Once the individual enters the retirement phase, they get access to the funds they’ve accumulated.

  • 401(k). The most popular traditional retirement plan. Your employer transfers a specific monthly amount (for instance, 5% of your salary) to the account. The scheme is simple, so where is the pitfall? You fully depend on the employer’s decisions. This results in a lack of financial freedom. Also, there are penalties for withdrawals and fees for account maintenance to be paid. The perk of the 401(k) is that the contribution limit is one of the highest – up to $20 500;
  • Solo 401(k) plans. Since America is the land of aspiring entrepreneurs, no wonder solo 401(k) plans were introduced. Not everyone is a fan of recruiting firms, Wall Street instability, and ATS bots. Be your own boss! Invest tax-deductible money with the highest contribution limit equaling $60 000. The disadvantage is that you can’t have a plan if you’ve got employees in your company.  Hence, the solo 401(k) plan is the best option for freelancers and contractors;
  • Traditional Individual Retirement Accounts or IRA. The whole idea of the IRA is freedom and total self-management. You open the account by yourself, and you manage it however you like. Deductible contributions and lower taxes are the best perks of this option. However, there are a few disadvantages. You can’t start the retirement plan if you’ve already got one. Also, the contribution limit is one of the lowest – $6000;
  • Cash-value life insurance plan. The best plan for high earners. The best part about this plan is a tax-deferring feature. It covers your life and lets your retirement investments grow. You can surely combine it with other plans – a flexible solution that stems from your lifelong insurance.

These are some of the main retirement plans to consider. For more options, contact your local retirement services to gain an understanding of term life insurance rates, or the Department of Labor.

How Much Money Do You Really Need?

There is no perfect answer to this question. As a rule of thumb, you should aim for the sum that will allow you to lead the lifestyle you want. When being retired, you won’t need to save money for retirement. Kinda obvious, right? This means you will need less money without caring about your accomplishments or job qualification.

two elderly people enjoy retirement

What are the other expenses you won’t have to worry about?

  • No more work-related expenses. You’ll pay less for the petrol because you will no longer be commuting to the office;
  • You won’t care about winning that dream job and reaching for resume service in order to get a bot-beating resume;
  • No more life insurance payments;
  • No more mortgage payments.

As a general rule, aim for at least 80% of your pre-retirement income. If you plan to travel or start a business, aim for more.

How to Accumulate Even More Wealth?

Don’t keep all eggs in one basket. Besides your main retirement plan, think of other sources of income.

Think of Social Security. For some retiring individuals, Social Security will be the one and only source of income. This is not great news since Social Security covers up to 35% of the pre-retirement income. The ones who benefit are the lower-middle class. For the higher earners, Social Security will leave the biggest chunk of their expenses unsatisfied.

Other sources to focus on are life annuities and traditional savings.

Final Thoughts

Thinking about getting old is never too early. Time flies, and so does your opportunity to save money. In the end, your retirement income includes your retirement plan combined with other financial resources. You may improve your financial literacy by taking an online course. Also, while investing in your retirement plans, don’t forget to invest in your career!

We hope the article was helpful to you. Good luck!

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