After years of working hard and saving, you can finally think of retirement. But now is not the time. If you are planning to retire within the next ten years or more, consider taking these steps to ensure that you have everything you need to live a comfortable life when you retire.
1. Look at Your Financial Status
You can start by thinking about the kind of retirement you want. Would you work part-time or volunteer and travel? Develop a realistic picture of your financial resources you may need and then determine whether your current ones will be sufficient enough to support your plan. Examine your income sources well in advance till your retirement, which will give you time to make any necessary changes. If you find a gap, think about accumulating the additional assets you need or adjust your vision to match the resources. By analyzing your current expenses, you may find items that can be eliminated or reduced. If you look at everything you have purchased in a month, you may be surprised at how much you can cut back to have more money to invest for your retirement.
2. Make Sure You are Diversified and Investing for Growth
It may be tempting to shy away from stocks to reduce risk, but the growth that stocks provide is an important stage of your life. Consider maintaining a mix of stocks, bonds, mutual funds and other assets that fit your risk tolerance, investment time horizon and investment needs. A well-balanced portfolio may help you with downfalls and help you generate income that you may need to cover expenses in your retirement that could last more than three decades. Diversification does not ensure a profit or even protect you against loss in declining markets.
3. Take Full Advantage of Your Retirement Accounts
If possible, increase your retirement contributions to a maximum. Aim to put enough in your account to qualify for any maximum matching contribution that your employer may offer. If you are 50 years or more, rules for catch-up contributions let you set more aside than the usual contribution. As you get near your retirement, account consolidation may simplify your investment management and provide a clearer picture of your total retirement assets.
4. Downsize Your Debt
Accelerate your mortgage payments so that the loan can be paid off before you retire. To curb your new credit card debt, try paying cash for major purchases. By limiting the new debt and reducing the existing debt, you can even minimize the amount of the retirement income that will be spent on interest payments. In other words, get done with all your debts before you near your retirement phase as there will be other important expenses to look after during your retirement than the debts.
5. Calculate Your Retirement Income
Estimate your predictable income from sources such as social security and employer pensions. The rest of your retirement funds should come from your savings and investment accounts. To make your assets last throughout your lifetime, the old rule was that you could afford to spend 4% of your portfolio annually in retirement. So, for example, you have SGD 1,000,000 in your retirement assets, you can only expect to spend SGD 40,000 roughly per year when you retire. Is that enough to support the retirement you are planning? 4% is a good starting point, but it can be overly simplistic. Your rate of withdrawal should be personalized and based on a variety of factors, like the age, gender and risk tolerance.
6. Estimate Your Retirement Expenses
Some expenses, like health care, may not exist now and may arise later in life. While other expenses, like commuting or clothing costs, may decline with time. So what you spend will depend on how you want to live during your retirement. For example, if you want to travel, the costs may be higher than they are now when you are still working. So based on your retirement plans and wishes, outline a rough budget that you must start saving for well in advance.
7. Consider Future Medical Costs
If you want to retire at the age of 65 years or older, your medical insurance or mediclaim will cover the majority of your routine health costs, but you may want to consider supplemental coverage to help you to pay for your non-routine health expenses, which may arise as you get older. Mediclaim does not cover most long-term care costs. To protect your retirement, consider buying long-term care insurance, which will help you with expenses such as home health aides. If you buy coverage now, your premiums would be lower than if you wait for a few years and you would be rejected less by insurers.
Consider putting the maximum contribution in your health savings account, if you have one. The money is tax-advantaged, but distributions may be subject to income tax and penalties if they are not used for qualified medical expenses. Money which you do not spend can accumulate with tax-free compounding till you need it during retirement.
When your retirement date is a decade away, it may seem like a distant event. But it is important to plan carefully and set realistic goals so that the time is on your side and it can help you to have the means to enjoy the retirement you have always dreamt of. Even if you have started saving and investing for your retirement, or have to begin yet, it is essential to know that you are not alone and there are steps you can take to increase your retirement savings too. It is never too late to get started.