when it comes to making retirement planMost Americans have some basic ideas about best practices. We commonly hear advice such as max out your 401(k), don’t splurge right before retirement, and consider downsizing as you enter your golden years.
But these are just the basics. Financial professionals say there are other important steps that many people overlook.
Here are 15 things financial advisors want people to know about retiring.
Will you be able to retire comfortably? Take this quiz and find out.
1. It is important to start saving early
When people start their careers, many fail to think about how making money in the beginning can help them build wealth This will bring big changes in the coming decades.
“It’s not something we’re typically taught to start thinking about at age 18,” says Aaron Cirksena, founder and CEO of financial planning company MDRN Capital. “But the sooner you start, the more your investment can grow.”
Who really has the cheapest auto insurance in your area? Check your zip code here.
2. It’s smart to invest in things that mix
Sarkasena believes that more emphasis should be placed on compounding your savings. Cash should not be left in accounts where it simply lies there and earns little or no interest.
“I want my clients to invest in things that will compound,” he says. “Even small, consistent contributions can add up over time.”
3. Roth IRA conversions help prevent big tax bills
According to Doug Carey, chartered financial analyst and founder of retirement/financial planning software WealthTrace, people who are expecting to retire early, and who don’t plan to apply for Social Security immediately, should consider converting funds from a traditional 401(k) or traditional IRA to a Roth IRA.
Converting to a Roth IRA allows retirees to “avoid the higher tax rates that will hit them when they start taking Social Security and require minimum distributions,” Carey says.
Senior citizens born between 1941-1969 can avail these 10 benefits.
4. Waiting to claim the results of a large Social Security check
Waiting to claim Social Security helps you secure a larger monthly payment for the rest of your life.
“When it comes to Social Security, waiting as long as possible to start claiming can make a big difference,” Cirksena says.
Just remember that the benefits of waiting end when you turn 70. Also, it’s important to understand whether your state taxes Social Security benefits.
5. Retirement isn’t just about money
Although many retirement plans involve finances, many do not All About money.
Stuart Shiffman, certified financial planner and founder of Compound Wealth Advisors, urges people to also consider what matters in everyday life.
“Many people don’t realize how linked their social life is to their happiness in retirement,” he says.
For example, being close to family and friends can be important for emotional well-being. “Don’t make the mistake of going to live on a foreign island just because it’s so beautiful,” says Shiffman.
6. Examining a retirement plan can reveal important insights
Before sitting down with a financial advisor, Shiffman says it’s important to know what you want out of retirement. He suggests examining what life might be like in your planned retirement location.
“Live for a few weeks in a community where you think you’ll retire,” he says. “Can you see yourself there ‘X’ years in the future? If not, try somewhere else.”
Retire like the rich: 14 ways you can build wealth at 50
7. Health care costs are likely to increase during retirement
People should be realistic and not underestimate how much health care will cost during retirement.
“Before retirement, people need to heavily consider health care costs and taxes,” Sirkasena says. “Because without taking this into account, your savings could be gone.”
8. Maximizing 401(k) contributions is key to a good retirement
Employees, especially those far away from retirement, do not always take full advantage of 401(k) programs at work. Experts say this is a mistake.
“Understanding the specifics of your 401(k) and maximizing contributions is another must,” Sirkasena says.
9. Taxes can be reduced by learning about the required minimum distribution work
Required minimum distributions (RMDs) are the minimum amount you are required to withdraw from your retirement account each year. For most people, this starts when you reach age 73.
Financial advisors want more people to understand RMDs and how they work.
“The federal government requires anyone with a tax-deferred retirement account to pay RMDs when they reach a certain age,” Carey explains. “These distributions are taxed at ordinary income tax rates.”
Carey says retirees who don’t understand this are “setting themselves up for bigger tax bills they didn’t expect.”
10. Early withdrawal can be expensive
It may be tempting to take money out of your 401(k) for a large purchase, but this should be avoided unless you have no other choice.
Sarkasena says people should understand the tax implications of withdrawals. “Early withdrawals can lead to penalties and unnecessary taxes,” he says.
11. It’s foolish to wait until retirement to put money to work
Shana Hennigan, chief business officer of savings platform Raisin, says no one should wait until retirement to put their money to work.
So, don’t let money sit idle in a checking account that pays little or no interest. “You can make your money work harder by prioritizing safe, guaranteed investments like CDs and high-yield savings accounts,” says Hennigan.
12. The hidden costs of relocation can be high
Experts say the decision to move into retirement should include many factors.
“Restoration doesn’t just mean finding a sunny place to retire,” says Cirkasena. “You need to know how state taxes, cost of living and health care can affect your financial situation.”
Money Goals: These 7 Smart Steps to Take When You Have $1,000 in the Bank
13. It pays to think about taxes throughout the year
Smart money management should start long before retirement. This includes being smart about taxes all year long, every year.
“If you’re only thinking about how to minimize your taxes in April, you’ve missed your opportunity,” says Stephen Cates, a certified financial planner and chief financial analyst at RetireGuide. “The tax game is played between January 1 and December 31.”
14. Cash flow becomes more important during retirement
Cates emphasizes the importance of estimating how much income you can expect to earn once you retire. “Retirement is primarily a cash-flow issue,” he says.
For example, if you live in a $2 million home with few other assets, “you’ll struggle to be able to support yourself in retirement unless you downsize and put that extra cash to work in income-producing assets,” says Cates.
15. Slow and steady is the best approach
When it comes to retirement planning, experts know that the slow, steady path is wise.
“The way forward is slow and steady,” Hennigan says. “Saving for retirement doesn’t happen overnight. Making small, regular deposits into a retirement account or savings product today will pay dividends for years to come.”
As your money grows, you can build a nest egg big enough for yourself retire early.
ground level
Experts agree that the path is a stress free retirement It starts with early planning, knowing what you want, and being realistic about your budget during your golden years.
So, take a look again at the items on this list and make sure you incorporate the advice into your retirement planning.