Retirement planning is a serious business and the sooner you get into it, the better. We often tend to procrastinate, thinking that we have enough time left for the same, but this often makes the task tougher than it would otherwise have been. So the question is what exactly is retirement planning, and how important is it for your future?
The process of retirement planning involves determining what kind of funds should be available to you at the time of retirement, to live comfortably post your retirement. There are a lot of factors that you would need to consider like when will you want to retire, where will you live, and what kind of a lifestyle will you have post retirement. Each additional year you want to retire early raises your goal considerably as you need to account for all the regular monthly expenses, medical and emergency expenses, vacations, celebrations etc.
When you see the costs add up after keeping in mind the inflation, this is likely to be your retirement goal and is clearly dependent on the type of life that you wish to lead. You may come across many typical figures that people throw at you regarding a retirement corpus that one should have, for example 20 times your income and so forth, which can be only used as some vague guideline. You must consider some important points to make sure that you are a smart investor when it comes to your retirement investing.
Evaluate the available instruments for retirement savings
There is a host of saving options available in the market when you want to invest for your post retirement days. There are many tax- efficient ways that can help you build up your retiral kitty, some of which can be availed directly through the employers while other plans are available through investment brokers or banks. However, it is important to closely look at each of these options to determine the benefits and derive the maximum profit by using them judiciously, when your aim happens to be a healthy retirement corpus.
There are some good retirement options that you can explore at your employers, as some may offer unmatched benefits and even give some kind of cushioning against the volatile stock market conditions. It is important to understand and evaluate the risk and benefits associated with each of the options. It is often seen that younger investors are more bent on investment options that have higher returns even if they have higher risks as they have enough time available to recover from the losses that may arise. However, in case you do not have too many years before you retire, then it’s best to avoid such options as you may not be able to recover if you lose your investments and will be better off with some conservative instruments with lower risk factors.
The following are some of the options available for planning your retirement:
- 401 (K) and other Employer Plans: There are several employer driven plans like the 401(K)s that can be utilized by the individuals to build up their retirement kitty while saving a considerable amount of tax too in many cases. They are also quite hassle-free as you can directly get the amount debited from your paycheck.
- Fixed Benefit Plans: There are many employer sponsored plans that offer a fixed the sum of money based on certain factors like salary drawn and the years of service one has put in at the establishment .
- IRAs or the Individual Retirement Accounts: These allow you to move pretax amounts up to certain annual limits towards tax efficient investments. These investments can also be tax deferred.
- Roth IRA: This can be seen as a retirement option that is similar to a traditional IRA though there are certain differences in the taxation of the contributions as well as the distribution income.
- SEP IRA: This is targeted at the employer or self-employed individuals, and they can direct 100% of their contributions towards various channels of their choice.
- SIMPLE IRA: this is a commonly used retirement plan by employers with 100 or less employees in that establishment.