If I had to choose one reason why people are under-prepared for retirement financially, it would probably be misunderstanding. Not just misunderstanding what retirement is about, but how and why it is different. Most people hear the popularized advice of living on 80% of your pre-retirement income or the safe withdrawal rate of 4% and then tune out. They don’t think about the further implications about what retirement actually means.
This is part of the reason that I write on this blog. In addition to arguing for a new idea of retirement, I also write to encourage other to start thinking about their retirement. Even if you are decades away from retiring, you should still be thinking and planning about your retirement. It doesn’t mean that you can’t live your life to the fullest, but it means being prepared for a financially-challenging part of your life. As it turns out, Smart Money published an article with a checklist for Retirement Savers. I thought I would highlight a few of these themes, because several of them are important for people to consider when planning for early retirement.
Advice for Retirement Planners
If there is one area where I need to spend more time thinking about and how to optimize, this is the area. As a person who just learned how to do his taxes a few years ago, I am still learning how to do things with purpose of tax benefits. While I am no master at this, I do recognize the benefit of trying to eliminate the amount that I have to pay in taxes. One strategy that I am using to lower my taxable income in retirement is to use a Roth IRA for both my wife and myself. I am maxing out the contribution each and every year because I know that having a sizable income each month from a tax-free account will come in handy.
Invest in Retirement
While you will want to reduce the risk in your portfolio, another worthy point that the article makes is the importance of having your investments work “through” retirement and not up until retirement. People are living longer than ever before and you need to make sure that you don’t outlive your investments. This isn’t to say that you should keep the same allocation in your portfolio, but it is to say that you can’t put all of your money “under the mattress.”
Planning for your retirement takes work. While there are always guidelines to use to help you, it has to be you that does the planning and sets goals. The important takeaway for me is that it isn’t just about planning before you reach retirement age. It continues throughout your life. While there is a change in your employment status, it doesn’t mean the end of planning or investing. The earlier you recognize this, the better off you will be.
Have you thought about what is going to change in retirement?