Retirement Planning: Tips for a Smooth Transition


Knowing when and how to start can be challenging, mainly when living paycheck to paycheck.

A recent study with 1,217 respondents in the United States found that the workers’ confidence in their financial preparation for retirement was high. The share of respondents who were very and somewhat confident was 66 percent.

Although many workers are confident in their retirement planning, some may need help preparing. Knowing when and how to start can be challenging, mainly when living paycheck to paycheck. Fortunately, this situation doesn’t have to hinder your retirement goals.

Retirement planning involves building financial security for a secure, comfortable, and fun retirement. How can you transition to this stage smoothly?

Build Your Savings and Stick to Your Financial Goals

The first step involves saving money. If you haven’t yet, start saving now. If you have been saving, keep going. Whether for retirement or other goals, saving is a rewarding habit that helps ensure your financial security.
You don’t have to start with a huge amount to save. Start small if necessary and gradually increase the amount each month. Small amounts are generally easier to stick to and less likely to significantly impact your daily and monthly expenses.
Include retirement in your priorities. Create a plan, set goals, and stick to it. The sooner you start, the more time you have to grow your savings.

Define Your Retirement Needs

Knowing how much money you need to save is necessary for your retirement plan. This amount depends on many factors, such as your annual income and the age at which you plan to retire. As such, you must define your retirement needs.
Your retirement needs may include the following:

  • Essential expenses, including food, transportation, mortgage, rent, taxes, insurance premiums, basic medical costs
  • Discretionary expenses such as travel, recreation, luxury purchases, and entertainment
  • Unexpected expenses, which involve emergency expenses, including significant medical needs, personal emergencies, and long-term care

Sign Up or Contribute to Your Employer’s Retirement Savings Plan

Employer-sponsored retirement plans can be sources of retirement income. Matching funds from your employer is also a bonus because it’s like getting free money.
Employer-sponsored retirement plans come in two types: defined benefit and defined contribution.
Defined benefit plans provide fixed benefits based on significant factors, including employment length and salary history. When you sign up for one, you can get benefits quickly, even with early retirement. Your employer usually makes the most contributions. They may require employee contributions and permit voluntary contributions.
Defined contribution plans are retirement plans where you and your employer contribute to your account. You can invest these contributions to grow over time. However, the value can decrease if the investments don’t do well.
Generally, they won’t tax your earnings and contributions in a defined contribution plan until distribution. Examples include 401(k) and 403(b) plans.

Research Potential Investment Opportunities

Investing is one way to grow your wealth. It also helps you save for your retirement. The types of investment you have significantly impact how much you’ll save. You must research potential investment opportunities to understand how they can help you secure your retirement.
Here are some of the investment opportunities to consider:

  • Income annuity: An agreement between you and your insurer where you pay a specified amount, either whole or monthly, to receive regular income payments
  • Diverse bond portfolio: You can invest in different bonds from government entities, overseas markets, and mortgage-backed securities. The bond issuer will make regular income payments based on the annual yield
  • Total return approach: Your investment portfolio generates income through capital gains, interest, and dividends. It is balanced with a diverse mix of bond and stock funds

Keep Your Retirement Savings Intact

Withdrawing your retirement savings now is risky. You may be required to pay withdrawal penalties or lose the principal, interest, and tax benefits.
If you switch jobs, leave your savings in your current plan. You may transfer it to your individual retirement account (IRA) or your new employer-sponsored plan.

Set Up an Individual Retirement Account (IRA)

If you don’t have one yet, open an individual retirement account (IRA) to save for your future. You can set it up through a bank, online brokerage, personal broker, or an investment company.
You can put up to $6,000 in your IRA. You can start with less or contribute more if you’re 50 and older. IRA also has tax advantages.
The contributions you make may qualify you for annual tax deductions. Moreover, you don’t need to pay tax until the withdrawal.
IRA has four types: traditional, Roth, SEP, and SIMPLE.

  • Traditional IRA: The most common IRA ideal for retirement planning. Many individuals choose this for deductible pre-tax dollars
  • Roth IRA: An IRA where you invest after-tax dollars. Although contributions aren’t deductible, you can grow your money and withdraw it tax-free
  • SEP IRA: Acronym for Simplified Employee Pension, it is a type of traditional IRA employers open for employees and themselves
  • SIMPLE IRA: Acronym for Savings Incentive Match Plan for Employees, it is another traditional IRA for small businesses with less than 100 employees

Consider Your Social Security Benefits

Social Security retirement benefits generally provide 40 percent of your pre-retirement income. It’s a safety net that can support your retirement years. You may estimate your benefits on the Social Security website’s estimator.

Analyze Your Time Horizon

The time between your current and expected retirement age is crucial in creating a successful retirement plan. The longer the time horizon, the higher the risk your portfolio can withstand.
If you’re young, you can invest in stocks. Stocks can fluctuate, but they generally make more money than bonds. The earlier you invest, the more money you can put in stocks. Meanwhile, you must be more careful of your savings if you’re older or close to retiring.

Pay Debts and Downsize Your Loans

If you have a mortgage, make regular monthly payments on time. Consider accelerating your payments so the loans are paid before you retire.
To avoid credit card debts, minimize your card purchases by bringing cash. Downsizing your debts will help you prevent spending some of your retirement income on interest payments.
This is also an excellent time to ensure your credit is healthy, as it can impact your loan applications. You must know how to check credit score to understand your financial situation.

Start Securing Your Future

Your retirement plan is the key to having a secure and comfortable future. The earlier you plan, the smoother your transition will be. This way, you can enjoy life without worrying about significant expenses.


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