Saving vs. Investing to Reach Your Financial Retirement Goals
One recent report says that 64% of
Americans will only have $10,000 in their retirement accounts when they retire.
If that seems like a lot right now, it's not even close to enough to live on
when you stop working. Retirement can last for 30 years or more. [1] Saving is good, but it can only get you so far.
If you have put off planning for your retirement, it's not too late to start. You could have the retirement of your dreams, but it will take some planning, work and time. Today, we'll talk about seven compelling reasons why taking charge of your finances now can help you in the long run.
Inflation Matters.
Prices of goods and services will go up and down over time. But overall, prices tend to go up over time, and this is called inflation. Over time, inflation can make the money you've saved worth less.
Putting money away in a separate account for retirement is a good first step, but you should start as soon as possible. One benefit of retirement planning is that the more money you save, the more protection you have against inflation, which is bound to happen. Investing in the stock market has historically been a good way to beat inflation.
Understand Your Needs
Studies show that more than 80% of Americans don't know how much money they'll need to retire comfortably. Assuming you have enough money in your account could lead to nasty surprises. You can stay one step ahead by making retirement plans as soon as possible.
A professional financial planner can help you figure out how much money you will need and how much you'll need to save to get there. Then, they'll help you set up steps to ensure you reach your goal. In this calculation, the following will be important:
●
Your
current assets
●
Your
savings right now
●
Your
planned costs of living
●
Your
sources of income after retirement
You can find online calculators that consider all these things and give you a rough idea of what you'll need in retirement, but nothing beats working directly with a professional.
Enjoy a retirement without stress.
76% of retirees will have trouble during this time; and worry about money is the main cause. When you're under that much stress, your whole life can go downhill. You might find it hard just sleeping and eating, let alone travel or do all the things you enjoy. You can avoid this stress and be sure you're saving the right amount if you plan.
Make better decisions in the present.
When you think about what you'll need in retirement, you can make better decisions now. These can be either personal or work-related. For example, is it better for your finances to remain at your current job for a few decades? Is it time to take a risk and go for that higher paying position you have been thinking about for a while now? You could even be thinking about buying a vacation home or turning a hobby into a way to make extra money.
These choices could help or hurt your finances, so you need to know where you stand. Remember that your answers will depend on when you plan to retire. If you still have 10 years or more in your career, you might have more time to think about ways to elevate your retirement assets than if you only have a few years left. Having an investment plan for retirement can free up some of your future decision making so that you can focus on what is happening now.
Save money for future health care costs.
It's difficult to imagine your health worsening as you get older. But the truth is that most of us will need long-term medical care when we retire. One report says that a person who turns 65 today has at least a 70% chance of needing some long-term care in the years to come.
We all know that this kind of care can be pricey. Putting money away now can help you save up enough money to pay for those costs in the future. If you want to buy long-term care insurance, you should also look into such policies sooner rather than later to get the best rates.
If your workplace offers it, consider starting a Health Savings Account (HSA).[2] This could help you save a considerable amount of taxes while increasing the amount of assets you will have to pay for future health care costs.
Enjoy tax breaks
You can take steps now to lower the income tax you'll have to pay when you retire. You can also reduce the amount of taxes your beneficiaries will have to pay in the future. All of this starts with knowing how diversifying tax works and where you can save money.
A qualified financial advisor can
help you learn more about your options and different kinds of accounts, such as
individual savings accounts, trusts, traditional IRAs and 401(k)s, or Roth IRAs
and Roth 401(k)s. IRAs are easy to set up and contribute to. [3]
When you start to plan for retirement early, it's easier to choose the best accounts and get your money growing in them. Your advisor will also know the latest tax laws and regulations and be able to help you figure out how changes in the future will impact your savings.
Share your goals
Are you and your spouse on the same page with your retirement plans? What about your kids and other close relatives? It is much easier if you have an open line of communication with those that are close to you regarding spending and saving goals. This is especially true if you plan to help a family member financially. For example, you might want to help your children go to college or start their own business.
If the necessary precautions are not taken, these actions may impact your retirement goals and potentially delay your retirement. One of the best things about retirement planning is that it allows you to talk to your loved ones about your plans and goals. This way, they'll know what is happening and could possibly assist you in getting there. At the very least, they will have an understanding of why you are doing or not doing certain things so you can focus on your retirement.
Make Planning for Retirement Easier by Starting Now
You know that planning for retirement is important, but you also know that it isn't always easy. There are so many little details and things that will affect where you start, where you end up, and how much you can save along the way. Starting your plan today can build your financial confidence and help make this a process that is relatively simple and stress-free.
Save for your emergency fund and other essentials, then start investing for you and your future. Investing may be the best way for you to reach your retirement goals and still have time to enjoy yourself in retirement. Remember, there is no loan program for retirement. It is up to you. So, take action, take responsibility and start now.
Citations:
[1] Internal Revenue Service (IRS). Retirement Topics - Benefits of Saving Now. Retirement Topics - Benefits of Saving Now | Internal Revenue Service (irs.gov)
[2] John Waggoner. American Association of Retired Persons (AARP). 5 Often Overlooked Tax Breaks You Don’t Want to Miss. 5 Often Overlooked Income Tax Breaks (aarp.org)
[3] Internal Revenue Service (IRS). How to Take Responsibility for Your Retirement. How to Take Responsibility for Your Retirement | Internal Revenue Service (irs.gov)
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