Retirement planning is very important, but people often start too late. If you’re reading this, then you’re taking an important first step. There are some basic concepts that are key to getting started. One of the biggest drivers for some people is being able to independently provide for themselves in retirement. Some people may prefer not to rely on family members or the government for support. Next, the ability to have some freedom and enjoyment in retirement is another common goal. Finally, being able to share some wealth and assist other family members in your elder years may be desired.
Let’s get started with some basics:
- Realistic retirement age – Many people want to retire early, but this isn’t realistic for all. If early retirement is your goal, you’ll have to have a very large nest egg built up to pull it off. People are living longer these days, and health-related expenses in retirement are tough to predict. Consider a realistic retirement age and life expectancy when deciding how many years to plan funding for.
- How much to rely on pensions – Brits are heavily reliant upon pensions for retirement. It’s a good monthly supplement, but you’ll also want to calculate how much of your own savings you’ll want to put aside in addition. You also have to think about how much inflation might eat away at pension payments.
- Nest egg – Here’s where much of the difference is made in retirement planning. If you have some pension funds but then add in withdrawals from your nest egg, you’ll have a much more comfortable retirement. Many people suggest setting aside at least 10 percent of your working income during your career for retirement. If you want to increase your odds of success, 15 percent is an even better number.
- Part-time work in retirement – If you didn’t save enough or want to have more options in retirement, a very practical solution is to work part time. For some people, this is just doing the same job with fewer hours. For others, it’s a lower-paying job with more flexibility. Still others may have a skill or side business to create some extra income. This added income helps you avoid drawing down your nest egg.
- Rule of 4% – A common retirement rule is that you can draw down your nest egg by 4 percent each year and still maintain the same balance for many years. The thinking is that if it’s earning a bit in yield or stock increases, by withdrawing no more than 4 percent, the balance can stay roughly steady. This allows you to create a second pension to some degree based on the total amount you have saved.
The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.
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