10 Reasons Why Retirement Planning is Important | INVESTEDMOM
Did you know that 10,000 Americans turn 65 each day?! Turning 65 used to mark the golden age of retirement, but in the 1990s, people started retiring earlier. In fact, in 1992, the retirement age was 62 for men and 59 for women! You definitely can’t blame them. Who wouldn't want to retire early enough to actually enjoy it?
Unfortunately, today, the average retirement age has increased to 64 years. This increase is because it gives individuals more time to save and invest, people don't want to lose their health insurance, and some honestly love what they do. Delaying retirement can also result in better social security benefits. Not to mention, the average life expectancy has increased, so people need more money to last them the span of their retirement.
Whether you are someone who wants to work their life away or someone who wants to travel the world while they are still young, eventually, everyone will have to retire. There are many reasons why a retirement plan is essential, so we compiled a list of 10 reasons that will convince you to start taking those first steps to make it a priority in your life and, in turn, grow your financial independence.
Why is Retirement Planning Important
Starting retirement planning may seem daunting and something you want to avoid at all costs, but starting early has many benefits. Even setting aside a small amount of your paycheck can make a significant difference in your financial future.
If you are struggling with additional funds, an excellent place to start is with a solid budget, creating a financial roadmap, and knowing the best questions to ask a financial advisor. But before you start down that path, let's learn your “why” because knowing that is crucial to the success of any endeavor.
Early Retirement
You may think, Sure, I'll set aside some money, and eventually, maybe I'll have enough to retire, right? I wish it were that simple. A proper retirement plan helps individuals systematically save and invest resources over time, and the earlier you start, the more time that money has to grow and work for you!
Start by setting clear goals, including what age you want to retire and the lifestyle you hope to maintain. If your house is paid off and you plan to live a simple life, great, you'll need less money! If you want to travel the world and enjoy a lavish lifestyle, also great, but you will need to ensure you start early and allocate sufficient funds that will allow you to meet your goal!
Once you have a clear goal, begin assessing your income and budget, and you will be well on your way to an earlier retirement age.
Less Financial Stress
If you are someone who is working hard and barely getting by, I see you! Cost of living expenses are on the rise, and even thinking about retirement planning is overwhelming for many people.
Would you believe me if I told you that retirement planning can actually reduce financial stress because it provides individuals with a structured approach to securing their financial future?
Reduced stress is due to increased financial clarity through tracking and knowing where your money goes. This information helps you set specific and measurable goals, including a future roadmap.
A solid retirement plan will include budgeting plans, expense management, creating an emergency fund, debt management, and investment accounts, which have retirement savings, risk mitigation, and tax efficiency. These components all aim to help you reach your financial goals.
Better Living Standard
How often do you read on the news that seniors don't have enough money to cover their living expenses? According to a recent survey, 1 in 6 retirees consider returning to the workforce after just four years! While many stated it was for 'personal reasons,' 53% said it was because they needed more money!
Many of us want to retire comfortably, and this doesn't mean sitting at home clipping coupons for the grocery store because we can't afford our monthly food expenses. Retirement planning lets you decide what lifestyle you want to live when you leave the workforce long before you do.
Having a solid financial foundation through a retirement plan will ensure you systematically save, invest, and manage expenses in a way that will help you prepare for the future and consider risk factors like health problems and inflation to protect your future.
Increased Financial Independence
Most people think retirement planning and investing will lead to less money and financial hardship, but did you know it is the opposite?
These plans help individuals build a secure financial foundation that will allow them to sustain their lifestyle without relying on employment income beyond their desired retirement age.
A solid plan encourages regular deposits and an emergency fund to protect you from unexpected expenses. It will also include investments into retirement accounts with diverse portfolios that take advantage of compound interest, which allows funds to grow exponentially over time.
In addition to living a good life after retirement, these plans protect you from the unexpected, which can severely affect your financial security.
Fulfill Your Retirement Goals More Efficiently
Does anyone else remember starting a job where they declared they would match your 401k deposits? It sounded great, so you just selected a random percentage? Having your workplace contribute to your 401k is amazing, but I don’t suggest just picking a random amount of contribution.
While any contribution to retirement accounts is excellent, retirement planning gives you a more direct focus and goals. The more money you set aside early on, the more opportunity it has to grow and work for you! In addition, a retirement plan will also help guide you in investing in ways that aren't just through 401Ks, which will diversify your portfolio, spread risk, and grow more efficiently.
Re-evaluating your retirement plan frequently ensures you are still making the right choices. That 3% into your 401K when you were in your 20s and broke is excellent, but as you can afford more, it's crucial to allocate your money wisely to plan for your future.
Leave Savings for Your Family
No one wants to leave their family with their medical expenses and funeral costs when they go, and most want to be able to leave them with a little something beyond that as well. Retirement planning can make this happen.
Though most may think of retirement as filling various retirement savings, it's much more. Effectively managing your finances will help you manage your assets and plan for longevity so your family isn't stuck with any debts if you lead a long and happy life.
Estate planning for retirement helps individuals set up a will, create trusts, and allows you to designate beneficiaries for your assets. There are also gifting strategies that can be leveraged during your lifetime to reduce your taxable estate while providing financial support to your family.
Account for Inflation
Many retirees have a set income after retirement, whether from Social Security benefits, a pension plan, annuities, 401ks, IRAs, or other retirement savings. Unfortunately, because of this fixed income, many are forced to return to work due to inflation.
If you choose to create a financial plan through a reputable advisor, they will provide you with long-term financial projections that will estimate your financial needs during retirement and take inflation into account. They will also recommend savings and investment strategies to help combat the unknown and help you prepare for whatever is thrown your way.
This thorough preparation will ensure you aren't stuck returning to work in your 80s if you don't want to.
Tax Benefits
Taxes are everyone's favorite subject, right? Well, I have some good news, and an excellent retirement plan will help you reap all of your tax benefits.
Tax advantages vary based on the type of retirement account. I'll give you a few examples. Retirement accounts such as 401(k)s and traditional IRAs are created with pre-tax money, meaning you don't pay income tax on them until you begin using them.
In addition, pulling money from each paycheck to put directly into your 401(k) can lower your taxable income!
If you need another reason to contact an advisor, finding someone well-versed in the Income Tax Act will allow you to plan the order and timing of your withdrawals to help you meet your financial needs while ensuring your taxable income is minimal.
Diversify Your Income Sources
Well-structured retirement plans involve multiple retirement and pension plans. These include 401(k)s, both traditional and Roth IRAs, and possibly employer pension plans. Each retirement account is a distinct income source, offering different tax advantages and withdrawal rules.
A solid retirement plan will enable you to create an investment portfolio that generates income through dividends, interest, and capital gains. In addition, diversifying your investments across asset classes, such as stocks, bonds, real estate, etc., will protect your retirement savings and offer excellent retirement benefits for your future.
Lessen the Burden on Your Family Members
We talked about leaving money to your family, but let's talk about using a retirement plan to reduce the burden on your family members. Retirement planning includes elements that will help you protect your assets and prepare for the inevitable.
An element that has a significant impact on expenses is healthcare costs. Strategies must be implemented to manage those costs, including a potential long-term care preparation plan.
Two other elements to include to ensure your family members are taken care of are estate planning, so your family knows what to do after your passing, and setting aside money for burial and funeral expenses. Many underestimate how much a funeral costs. To give you an idea, the median funeral cost for a viewing and burial is $7,848, while a funeral with cremation costs around $6,970.
Start Planning for Retirement To Ensure Your Financial Independence!
There are many benefits to retirement planning, which include:
Retiring early
Less financial stress right now and in the future
A better living standard throughout your retirement
Increased financial independence
Fulfilling your retirement goals more efficiently with specific goals and objectives
Ensuring you leave savings and lessen the financial burden on your family members as you age and after death
Ensuring you account for inflation
Reaping all of the available tax benefits
Diversifying your income sources
If you want to learn more about retirement, check out my new book, A Wealth Building Framework. I go into detail about planning your retirement and provide practical advice that will help you create a comprehensive retirement plan.
At Invested Mom, I’m here to help better prepare you for your financial future.
Meet the Author:
Inge was born and raised in Cape Town, South Africa, and moved to Canada in 2010 looking for a better life. She always had an entrepreneurial spirit and started her first side hustle when she was 9 years old – selling fudge at school during lunch breaks.
It wasn’t until much later that she realized that saving isn’t enough to get ahead. She was always very interested in real estate, but saving up for a down payment was grueling and slow, and the demands of life kept getting in the way.
She started investing in herself and upgrading her skills while learning how to invest. She quickly became debt free and compounded her money at a staggering rate.
It wasn’t until she became a coach that she realized how significant an impact she can make in people’s lives by sharing her journey, learnings, and processes.
So here she is, advocating for everyone who is invested and wants to build their wealth, especially the mommas!