Many Americans are worried about how much money they’ll have left when they reach retirement. While you may have a good income now, your current savings probably won’t last long once you’re retire if you don’t have a savings plan in place. The following questions are things you should ask yourself when starting a retirement plan, or when determining if your current plan will be enough.
1.How much longer do I have until retirement and how long does my savings need to last beyond that point?
The first thing you have to determine is when you would like to retire. Subtract your current age from your desired retirement age to find out how many years you have to save up. Now you have to figure out how long you’ll need to use that retirement savings. Since no one knows exactly how long they’ll live, plan to live to 100; you’ll probably have plenty of savings during your retirement. All of this is important information to know when you begin planning for your retirement. Some plans offer an income life, while others only last until the money you put in and the interest you earned has run out.
2. How much money can I afford to set aside per month for retirement?
This is where it comes in handy to have a budget. If you don’t already have one, you should start one. No matter how old you are, the time to save is now.
The longer you wait to start your savings, the less money you’ll have for retirement. Figure out how much you think you can afford to save per month, and figure out how much you’ll have by the time you reach retirement. If you have 20 years left until retirement and you put away $50 a month for that whole period, you’d have $12,000 saved when you reach retirement. That amount isn’t going to be enough to last you through retirement, so you should plan to put away more per month in the future as your income increases.
3. How much risk am I willing to take?
This is a very important question when you’re choosing a retirement plan. Some 401(k)s, IRAs and other retirement plans are invested in the market, so you run the risk of losing money if the market goes down.
Other plans like fixed annuities and index universal life insurance have no market risk, so you can earn interest without risking your money in the market. You may need to speak with a financial professional to determine how much risk you’re comfortable with.
4. What if I need access to the money early?
When choosing a retirement plan, it’s always good to think about emergencies that may come up. If you become ill or injured, you may have medical bills come up, or maybe you’d like to help your child pay for college.
Many retirement plans have restrictions and penalties for accessing your money early, so you’ll need to make sure you understand the restrictions and fees that your retirement plan offers. Index universal life insurance policies allow you to take out loans, while IRAs, 401(k)s, annuities and other plans may not be as flexible.
5. Do I want to leave an inheritance for my family when I’m gone?
Many people would love to leave money for their families, but never really make a plan to do so. Some retirement plans can be passed on to your loved ones tax-free when you pass away, while others cannot. If you choose a retirement plan that does not allow you to pass on your money, you may want to consider purchasing a life insurance policy so that your loved ones can pay for your final expenses and have an inheritance.
Planning for retirement is one of the most important financial decisions you’ll ever make, yet many people don’t take the time to consider all of their options to determine the best plan for them.
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