While the average person plans to retire, he doesn’t always take the time to think through each step needed to reach that goal. With many aspects to consider, some important matters may fall by the wayside. Below are several considerations which should be remembered when planning for retirement.
1. Effects of Inflation
Inflation makes retirement a challenge, because you are aiming at a moving target. It is difficult to predict how much money you will need to live on in your retirement years. Even with a 4 percent inflation rate, something that costs $1,000 today will cost $1,480 in ten years. The solution to inflation is simply to plan ahead. While inflation rates rise and fall each year, it is imperative that we anticipate an average rate to prepare for retirement. Based on past trends, at least a 3–5 percent rate is commonly recommended.
2. Employer Retirement Plans
If your employer offers a retirement plan, it is crucial that you are fully informed of all your options. Pay close attention to the details of the plan and make sure you take full advantage of the program’s potential. Qualified employer-sponsored retirement plans come in various shapes and sizes. Taking time to learn about the ones offered by your employer may reap enormous financial rewards.
3. Unique Issues for Women
Women have a unique set of circumstances relative to retirement. Take a look at the list below to see why women face these situations and how to adequately prepare for them:
- Women, on average, live longer than men, so they typically require larger savings.
- Women tend to spend fewer years working because of family responsibilities, so the amounts they save on a regular basis must be larger.
- Married women can take advantage of their husband’s retirement assets, but are at a disadvantage in preparing for retirement.
- Women typically earn just 4/5s of what men earn and also change jobs more often.
- Women work part-time more often than men.
- Women tend to be more conservative in their savings strategies, thus limiting their investment growth potential.
4. Forced Retirement
Corporate restructuring has forced many individuals into early retirement. Unplanned retirement can create a financial crisis if you are unprepared. If you are forced to retire early, you may have to rethink your retirement plans.
Below is a quick summary of the necessary steps to take over time to prepare for and attain a fulfilling retirement.
- Eliminate debt (credit cards first).
- Create an emergency fund (approx. three months of income/expenses).
- Contribute to 401(k) or 403(b) retirement plans and IRAs.
- Eliminate mortgage interest payments.
- Create retirement assets.
- New expenses.
In addition, many individuals forget to consider additional expenses which come with retirement and, in general, old age. They may need to cover a number of costs later which they currently don’t worry about, such as health insurance premiums and prescription drug costs. We must remember to anticipate new expenses such as these, and with careful planning you can reach your retirement goals and enjoy your years in retirement.