If you share something in common with the majority of Americans, it’s probably the desire to someday retire. Even if that date is more than 20 years down the road, it’s never too early to start your retirement planning in order to meet your long-term financial goals.
A trusted financial expert can help you craft a plan that includes a review of your estate and portfolio investments, tax planning, educational funding strategies, insurance and risk management, and other retirement issues. Following are 10 basic recommendations to help get you started on your retirement plan and in good financial shape for your golden years:
1. Erase debt
Analyze your debt situation, and create a strategy for how you will either pay them off prior to retirement, or continue to pay for them once you are retired. If you’re nearing retirement with substantial debt, read this blog.
2. Obtain adequate insurance
Research various life insurance plans and make sure you’re investing in one that is appropriate for your needs and timeline. Ensure your home is adequately covered, and your deductibles and premiums are reasonable. It’s also important to consider a plan that offers adequate insurance coverage should you become disabled, as well as providing for loved ones in the event of your death. Long-term care insurance could also be considered if you have an estate needing extra protection.
3. Regularly review investments
It’s a good idea to work together with a financial professional to ensure your investment portfolio is diversified across various accounts with different tax implications. Make sure your portfolio uses funds with low expense ratios and is rebalanced regularly.
4. Update your estate plan
It’s a good idea to regularly go over the details of your will, review who you’ve appointed power of attorney, examine your healthcare plan and consider the establishment of a trust to protect your assets. Sometimes will executors and beneficiaries are no longer relevant, so it’s important to review all your estate plan details once every few years, or immediately if you experience a life event such as a marriage, divorce, family death, or birth of a new niece, nephew or grandchild you wish to include in your will.
5. Contribute to your retirement plan
Try to contribute the most you possibly can each year to your 401(k) ($18,000 in 2016, plus $6,000 catch-up if age 50 or older). If you can’t contribute the maximum amount, try to put aside at least enough to receive a match from your employer. If you are self-employed, there are still several options to save for retirement. Look into opening a SEP IRA or Solo 401(k), which both allow you to contribute more per year than a traditional IRA.
6. Establish an emergency fund
This is something that can be accomplished little by little, with automatic transfers that are automatically deposited into your savings account. Before you know it, you’ll have a stash of money (I recommend three to six months of living expenses) saved up to cover the emergencies that life may bring—such as a job loss, hospital bills, and costly car and home repairs. An emergency fund will prevent the temptation to dip into your retirement fund, which could result in costly financial consequences (federal and state income taxes, plus a 10% early withdrawal penalty for investors younger than 59 ½).
The bottom line:
The above suggestions are just a few of the most important steps involved in retirement planning. Be sure to meet with a financial professional to map out some more detailed financial strategies for how and when you will start your golden years.