Retirement planning should allow you to retire comfortably and be happy. You should find a comfortable medium, where you can retire and maintain the lifestyle that you want to enjoy. The lifestyle you live, and your spending habits will have a major impact on your ability to be comfortable in retirement.
Today, we’re going to outline a five-step process to follow so that you can retire the way you want.
5-Step Process to Retire Comfortably and Be Happy
1. Defining “Comfortable” for You
What is your definition of “comfortable?” Some people want to hit a monetary goal of $1 million before retiring. Once these individuals hit this milestone, they’ll retire. For other people, they want to have the income they need to pay their bills or travel.
Identifying what you want to do in retirement will help you define what comfortable is for you:
- Do you want to be able to travel whenever you want?
- Do you want to give money to charity or to your family members?
A lot of people are comfortable when they’re able to pay their bills and put food on the table. You might not want to travel or give money away to grandchildren – that’s perfectly fine. The goal here is to understand what you envision for retirement and what would make you comfortable exiting the workforce.
Knowing your definition of comfortable will help you prepare for retirement.
2. Know Your Risk Tolerance
Investments always have risks, but there are safer ways to allocate your assets as you age. The typical way people approach risk tolerance is:
- Invest in riskier investments when you’re younger – you have time
- Slowly start adjusting your portfolio for less risk as you get closer to retirement
Oftentimes, we find that people don’t adjust their investment portfolios, leaving them open to a high level of risk exposure. Could you risk your retirement losing 20% to 30% of its value because of high risks?
For some people, they have more than enough money and can afford to keep the majority of their investments in stocks. But there are ways to lower your risk tolerance and still retire comfortably without worrying about stock market fluctuations or volatility in the markets.
3. Write Down Your Plan
Make your retirement plan real by putting it in writing. A lot of people have plans in their heads, but they don’t put their plans to paper. When you create a retirement income plan on paper, it helps you:
- Refer to the retirement plan
- Make adjustments easily to your plan
- Visualize your ability to retire
If you don’t know where to start when writing your plan, work with a professional that can help you devise a successful retirement plan.
4. Educate Yourself on Retirement Income Strategies
You’ve worked towards your retirement by putting money into IRAs, 401(k) and other investment vehicles. The tax consequences are different for each option. For example, some IRAs are tax-free, and some are pre-taxed.
A traditional IRA is basically ordinary income. Roth IRAs are tax-free.
There are a lot of ways to withdraw money from these accounts. You need to have a plan so that you can withdraw the money you need without suffering from major tax burdens or financial strain in the process.
And there’s also different streams of income, such as Social Security or a pension, which is guaranteed income. Dividend stocks that are income generating may be part of your portfolio, but the stock market isn’t guaranteed income. There are risks and advantages to stocks, and this is really what you need to educate yourself on.
Creating a retirement plan that is comfortable and that you can depend on is the key to a stress-free retirement.
5. Focus on Your Retirement Plan – Not Everyone Else’s Plan
Life is stressful enough, and comparing your retirement plan to someone else’s plan only makes it more stressful. Don’t start comparing your plan to your neighbor’s, brother’s, sister’s or other person’s retirement plan.
Your lifestyle may be different. Your neighbor may have $300,000 saved but no pension plan to rely on. You may be comfortable living on $40,000 a year and have already paid off your mortgage, but Joe down the street may struggle to get by on $120,000 a year because he needs the newest vehicles, takes expensive vacations and always has the “best of the best.”
When you compare your retirement to other people’s retirement, you need to look at the entire picture. You might not have the same savings or amount stashed away in a 401(k) as someone else, but your retirement may be a lot more secure.
Want to take your retirement planning to the next level? We’ve created a mini course called 4 Steps to Secure Your Retirement that you can follow to retire comfortably and happy.
If you want to discuss your retirement goals or make sure that you can comfortably retire, one of our team members will be more than happy to help you.