5 Retirement Planning Tips

Planning for retirement isn’t something that gets most people excited. It feels far-off and boring. It also feels like a lot of work and sacrifice.

You start to think things like: Do I really want to live off rice and beans for the next 30 years just so I can enjoy a comfortable retirement? But the reality is that retirement planning is a necessary part of growing up and being successful with money.

A failure to plan for retirement not only deprives you of the opportunity to relax and enjoy the comfort of an easier life in your later years, but it also shifts the burden of expenses and potential health challenges onto other people (such as your kids).

Fortunately, retirement planning isn’t as difficult as it may appear. With some smart planning, you can put yourself in an excellent position for your future. Here are five key tips.

1. Start Early

It’s never too early to begin saving for retirement. (It’s also never too late – but it’s obviously preferable to avoid placing yourself in the position of having to catch up.) The sooner you start, the more time you’ll have to let the power of compound interest work for you.

You might not be at a place in your career where you can invest thousands of dollars a month. But there’s no reason not to begin by making small contributions. Even $100 a month will add up over the years.

2. Plan for Inflation

Inflation is simply a fact of life. If what’s occurred during the era of COVID is any indication, inflation might well accelerate over the coming decade. Assuming that’s going to be the case, you should accept it as a way of life – and plan for it.

Planning for inflation means saving more than you think you’re going to need (since a dollar saved today will be worth less than that in the future). Inflation leads to rising costs, which means items like food, travel, and health care will all be more expensive when you retire. 

3. Use Tax-Advantaged Accounts

Get involved in as many different tax-advantaged retirement vehicles as you can. These may include a 401k or IRA (usually associated with your work). If you can get the Roth variety, that’s typically more beneficial than the more traditional route.

A health savings account (HSA) is also another great option. It enables you to lower your taxable income whenever you contribute, while also allowing for tax-free growth and withdrawals.

4. Think About Income During Retirement

Don’t underestimate your potential need for income during retirement. Once you leave your job, you’ll be looking for ways to create revenue (so as to preserve some of the nest egg you’ve built over the long run).

One way to do this is by investing in an annuity. These are investments that you pay into for several years with the guarantee of future income. This income could be a fixed or variable amount.

Depending on the type of annuity, the payments could be for a fixed period of time or indefinitely for the rest of your life. In a time when pensions are few and far between, annuities provide a comforting source of supplementary income.

5. Try Macro and Micro Diversification

Diversification can be a key facet of a healthy retirement planning strategy. As you think about this concept, though, make sure you pay attention to both macro and micro diversification.

Macro diversification refers to seeking variety across asset classes. For example, you might want to put some money in the stock market, other funds into bonds, real estate, and perhaps even a little into speculative investments like cryptocurrencies.

The goal is to spread your money out across a broad array of classes so you lower your general risk.

Micro diversification is where you diversify within individual asset classes. For example, you wouldn’t want to put all of your 401k resources into a single investment fund.

Instead, you can spread them across four different ones (such as a small cap, large cap, growth fund, and value fund). Or if you’re investing in cryptocurrency, you may divide your investment evenly across Bitcoin, Ethereum, and Chainlink.

Meet with an Advisor

Though there are plenty of DIY investing tools that make it fairly easy to get started with investing, retirement planning is an absorbing activity that ought to be managed by a professional who knows what he or she is doing.

It’s a wise strategy to locate a financial advisor you can trust and sit down with that person to discuss your various options. If nothing else, a professional can give you a clearer idea which choices might be best for you in view of your particular situation.