Why You Should Plan Early for Retirement

Whether it’s traveling more, spending time with family, or just having freedom over your time, everyone has reasons to look forward to retirement. Planning early can ensure that you have the financial cushion to enjoy retirement when you want. Here are some tips to plan for retirement today.

Determine Your Time Horizon

This is important for a couple of reasons. The more time you have before retirement, the riskier your investment strategy can be. There’s always some volatility with investments, but the longer the time horizon, the more likely it will be that your hard-earned retirement savings will increase in value. If you are closer to retirement, you will want to invest more frequently in lower-risk options to reduce the risk that your investments will lose value and delay your retirement timeline.

Another reason your time horizon is important is the time needed for certain financial products to mature or vest. If you invest in fixed deferred annuities, you will need to have a time horizon similar to the accumulation phase in order to pay into the annuity while you still have income. If you have frequently switched jobs that offer differing periods for vesting into the company’s 401k, you will want to make sure that your plans for retirement match up with the vesting period.

Determine Risk Tolerance

Saving all the money necessary for retirement is almost impossible without investments. Current interest rates earn less than inflation, requiring you to save more of your income today to have the same spending power in retirement. Investments allow your money to earn higher returns and outpace inflation. However, you have choices for how risky your investments are. Before allocating your retirement money into various investment vehicles, determine what level of risk you are comfortable with. There is no right or wrong risk tolerance. Choose a profile that you are comfortable with and won’t keep you up at night worrying about your investments.

Determine Spending Needs

Part of saving enough for retirement includes estimating how much you expect to spend each year. Most individuals spend less in retirement than during their working careers, but this isn’t true for everyone. If you plan to travel more during retirement, your spending needs may be higher. Consider which debts you will still need to pay off during retirement, as having a mortgage payment is a frequent reason retirees run out of savings.

A little planning today can ensure you have the necessary financial cushion to enjoy retirement. Consider these points when creating your retirement financial plan.