6 Steps to Strategic Retirement Planning & Investments
Retirement planning is something that many people don’t even think about until their late 30s or 40s, but even if you’re in your 20s, it’s never too early to start saving for retirement. By starting early on retirement financial planning, you’ll be able to set yourself up for a bright future.
Knowing how to go about planning for retirement isn’t always easy, especially if you have yet to create wealth or you’re currently in debt. Luckily, we’ve simplified the process by providing you with this step-by-step guide to strategic retirement planning to ensure future financial stability.
How to Plan for Retirement: A Step-by-Step Guide
Even though some of the steps laid out below may seem obvious, it’s still important to cover even the most basic tasks for successful retirement.
Once you’ve covered the basics, like establishing an income and reducing debt, you can move on to the more complicated stuff, like knowing where to invest in retirement and deciding on the right superannuation plan based on your specific financial situation.
So without further ado, here are the exact steps for wise retirement financial planning and investment:
Step 1: Assess Your Current Financial Situation
Before you can start formulating a plan, you need to know what you’re dealing with. That’s why the very first step in retirement planning is to thoroughly assess your current financial situation.
During the assessment phase, evaluate everything from your bank account balances and investments to your debts and monthly payments. This will give you a better idea of your potential for savings and allow you to establish realistic goals for your retirement plan.
The key to this step is to determine your exact net worth at this point in time by taking stock of your assets as well as your liabilities.
Step 2: Focus on Accumulating Income & Start Saving
Saving money isn’t everyone’s cup of tea, but it can actually be quite rewarding, especially when retirement is just around the corner. Before you can start saving, though, you need to establish a reliable source of income, starting with a regular paycheck.
While you don’t have to save every penny of your earnings, it’s recommended that you set aside a certain percentage of each paycheck and put it in a retirement fund. You can also contribute to a superannuation fund, but more on that later.
Step 3: Create a Plan to Reduce Debt & Lower Expenses
If you’re like most people and have accumulated some form of debt, it’s important to eliminate this debt before you move on to retirement planning and saving. This doesn’t apply to “good” debts, like a home mortgage or car payment, but only to “bad” debt, like credit card balances and personal loans.
Getting out of debt isn’t always easy, and it’s important to be patient. Depending on your income and the total debts you owe, it could take years to become completely debt-free. Luckily, there are a few things you can do to speed up the process:
- Add up the sum total of all your debts and take inventory of everything you owe. Record this information and include important details of each debt, like minimum payment due, interest rate, and monthly due date.
- Adjust your budget so that you can pay off your debt more aggressively. Do your best to cut back on monthly expenses and prioritise paying off your high-interest debts first.
- Consider finding additional income opportunities. Many people find a side hustle that’s specifically meant for debt management, like childcare, dog walking, or rideshare driving.
Step 4: Diversify Your Investment Portfolio
At the beginning of your retirement financial planning journey, you may not even be capable of creating an investment portfolio. But once you’re financially stable with a consistent income and no debt, you should start thinking about where to invest in retirement.
The key to smart investing is to diversify your portfolio by putting your money into a range of different financial sectors, like stocks, bonds, real estate, and more.
By diversifying your investment portfolio, you’re better able to manage risk even if one investment is performing poorly. Even if you only invest in stocks, it’s always best to spread your money over different industries, like technology, healthcare, energy, etc.
Step 5: Compare Superannuation Options
Superannuation is a pension program designed by employers to benefit employees and help them save money for the future. It’s available only to Australians, but it’s very similar to US programs like defined-benefit and defined-contribution plans.
Superannuation starts when monetary contributions are made by the employer, and in some cases, the employee. Depending on the plan, the contributions will grow by a certain percentage each year, and eventually, the employee can withdraw benefits from the fund.
With the right superannuation plan, your hard-earned funds can grow more rapidly due to the favourable tax treatment from your employer. This is an integral aspect of retirement saving, so it’s crucial to compare your options to find the best plan based on your circumstances.
Step 6: Hire a Financial Consultant
Even though you may see it as an unnecessary expense, there are many benefits to working with a financial consultant for retirement planning.
An experienced financial planner has the expertise and knowledge that’s needed to navigate the complex financial concepts and strategies that can be difficult for the average person to understand. That means you’ll receive valuable insights on investment opportunities, tax benefits, and debt consolidation.
Access to a personalised retirement plan is another major benefit of teaming up with a financial professional. It’s easy to find a generic plan that applies to all people, but with the help of a consultant, you’ll receive an individualised plan that’s specific to your unique financial situation and goals.
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