While most people know that retirement planning is important, many do not have a good idea of what a retirement plan actually is. A comprehensive retirement plan is essential if your goal is to retire comfortably. But, even with a good plan mistakes are possible, which can be very costly. In order to avoid those mistakes, you first need to know how to define retirement plan.
How to define retirement plan
A retirement plan is the process of determining retirement income goals and the transactions and decisions that are necessary to achieve those important goals. Retirement planning involves recognizing your sources of income, estimating current and future expenses, implementing a savings program and managing your assets. Future cash flow must also be estimated in order to determine if your retirement income goal is reasonable and can be achieved. This is how to define retirement plan.
In the most basic sense, a retirement plan is what you do in order to be prepared for life after your paid job ends, not only financially, but also in all aspects of your life. The non-financial facets of a retirement plan include such lifestyle choices as how you want to spend time in retirement, where you want to live, and exactly when you will stop working completely.
Retirement plans need to be revised
The emphasis one puts on retirement planning changes throughout different life stages. Early in a person’s working life, retirement planning is about setting aside enough money for retirement. During the middle of an individual’s career, it might also include setting specific income or asset targets and taking the steps to achieve them. In the few years leading up to retirement, financial assets are more or less determined, and so the emphasis changes to non-financial, lifestyle aspects.
Make sure you have reasonable retirement goals
Most people don’t really know where to start when it comes to retirement planning. That is because most people have no realistic idea of how much money they will need to maintain their lifestyle once they retire. Some believe they need much more than they really do, which unnecessarily makes their retirement goals unachievable. While others set their goals much too low, which ultimately results in financial problems during retirement.
Prepare for health care costs which will likely increase
Possibly the most important, yet most overlooked, issue in retirement planning is being prepared to cover your future health costs. While it may be difficult to do, it is really essential to estimate your likely health care costs to be sure that you have sufficient income to cover them. The reality is, as we age, our need for health care typically increases. So does the costs for treatment. According to one report, a 65-year-old couple retiring in 2016 will pay an average of $260,000 in healthcare costs during retirement. It is not safe to assume that Medicare will cover all of those costs. So, you need to be prepared.
Consider the possibility you may need long-term care
For those who have the experience of caring for an aging parent, you know that the time and expense of providing that care can be significant. The medical expenses associated with a short-term illness can be enough to exhaust your savings. So, the possibility of needing long-term care must be considered in retirement planning. It is projected that 70% of individuals who have reached retirement age will need some form of long-term health care. So, consider your long-term care options ahead of time so you can plan for them successfully.
Be sure to have sufficient savings
If you start saving for retirement now, you will have a much better chance of accumulating sufficient money to provide for a comfortable retirement. That is just common sense. The sooner you start putting money aside, especially in an interest-bearing account, the more money you will have.
You may need to update your retirement plan
Do not overlook the need to periodically revise your retirement plan. You should do this at least every couple of years, just to make adjustments for the changes in investments, income, and expenses. Any significant life event, like the birth of a child or a marriage, would be a sure sign that it is time to review your retirement plan. If you fail to keep your retirement plan current, it is more likely that the plan you have will not sufficiently meet your retirement goals.
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