How to Ensure You Can Afford Retirement

Retirement for many people is a phase in life they have been looking forward to their whole lives. It is a chance to finally travel, spend time with family and otherwise do all things life hasn’t provided during our busy working lives.

However, nowadays only a lucky few will be able to truly afford to continue the lifestyle they had while bringing in a regular paycheck.

Current statistics show that U.S. households are not saving and investing enough for retirement. About 37% of the workforce above 25 and 19% of retirees don’t know where to get retirement or financial planning advice.

Having a robust retirement plan can support you, providing you with the cash you need to sustain the lifestyle you are envisioning having.

Here is how you can ensure you afford the retirement you desire.

Set Retirement Goals

A great retirement plan starts with setting clear retirement goals. Retirement goals help determine how much you should save to afford your desired income level. They specify where you want to live, how you want to live, and other factors determining your retirement life.

Retirement goals are not set in stone. As you progress through your career, they can change, warranting a reassessment of your position regarding achieving these goals.

Pay Attention to Timing

The consensus among the workforce is that the average retirement age is in the upper 60s. However, the actual retirement age is typically an individual thing, as circumstances may vary.

For instance, declining health or an accident can force you into early retirement.

Even social security retirement benefits disbursements rely on your preferred retirement age. The law dictates that these funds are availed in full between age 66 and 67, depending on when you were born.

However, if you extend your retirement to 70, the law increases the benefits by 8% for each year you delay.

Come Up with a Comprehensive Retirement Budget

The early years of retirement are the trickiest and most influential to the long-term sustainability of your retirement plan. Spending the same or more than your earnings within the first few years is common.

The most common culprits for overspending in retirees include expensive costs of living and continued support for adult children.

Your retirement age also factors into the budget. For instance, retiring before 65 increases your healthcare costs since you’re still ineligible for Medicare. Before coming up with your magic retirement number, calculate the cost of your retirement plan with these factors in mind, build a comprehensive budget around it, and determine how much you’ll need to afford it.

Use the 4% Rule

The 4% rule is handy for determining how much you need to save to afford the lifestyle you want after retirement. It helps you determine how long your money will be able to last.

Under the 4% rule, you withdraw 4% from your diversified retirement portfolio in the first year of retirement and adjust the amount by the previous year’s inflation for subsequent years.

For instance, with a $1 million portfolio, the first-year withdrawal would be $40,000, adjusted by the previous year’s inflation for the following year. Using this strategy, if you discover that your current retirement portfolio can’t foot your living expenses, you might want to consider saving more, working a few more years, or both.

Diversify and Invest

Saving alone won’t be able to sustain your retirement lifestyle. Diversifying and investing in stocks, mutual funds, bonds, and other assets can significantly boost your retirement plan.

These investments should fit your risk tolerance, liquidity needs, and investment time horizon to ensure you get the most out of them. For instance, if you’re a few years shy of your retirement, faster-yielding stocks will be the most reasonable investment than bonds that might take longer to mature.

A well-balanced portfolio also helps weather downturns such as inflation, health emergencies, and other expenses. However, you should consult a professional to ensure you’re investing in the right markets.

Keep an Eye on the End Game

The age of 50 is considered the beginning of the retirement end game. For most people, fortifying your retirement plan at this stage is crucial in ensuring that you have a solid plan with actionable steps to achieve the desired results.

One of the wisest actions you can take at this stage is to join a community such as Rocket50, where you can have candid discussions about retirement plans and available investment options that fit your financial requirements, such as securities and mutual funds