Retirement planning is a critical process for creating financial stability later in life. It is more than just having a savings account. It empowers you to use tax savings strategies, investments, and time itself to help you build the financial wealth desired so you do not have to worry about the future.
Why is retirement planning important for everyone? The fact is, no one can rely on Social Security benefits to be enough to meet their financial obligations. In many cases, you’ll need some source of retirement income during those later years. If you don’t want to work for the rest of your life, you’ll need to consider the available strategies that could help you create financial security. Whether you have a lot of assets and wealth or you have a lot of debt, what you do today about your retirement planning will impact your life for years to come.
Invested Better provides you with guidance on finding the best financial advisor for your needs and goals. No matter where you are in your wealth-building journey, you can get matched with a financial advisor that can help propel you forward.
The Benefits of Planning Early for Retirement
If you need more reason than that, consider the following benefits of having a comprehensive retirement plan and what retirement planning could mean for your future.
1. Financial Security
For many people, the main reason for utilizing a retirement plan is to create financial security later in life. It enables you to have money put away to cover all of your bills and needs without having to worry about having to work when you are older.
With the help of a retirement plan, you can reduce unnecessary stress on daily life well into the future. For many people, no matter how hard they work to save money, it will not be enough to meet their financial needs during retirement, unless they develop a complete retirement planning strategy.
Creating a retirement plan now means you are likely to retire sooner than if you wait even a small amount of additional time. Consider that the true benefit that comes from setting up a retirement plan early is that there’s the opportunity for compound interest to build over time. That means you’ll put in less to get to the retirement goals you set overall or be able to retire early.
2. Preparation for Health Costs
The cost of healthcare continues to rise. From just 2023 to 2024, healthcare costs have risen by 7%, and that value is likely to continue to go up. In the US, the average life expectancy for all adults in 2022 was 77.5 years. With improved cancer treatment and more advanced therapies, this increase continues to happen year after year. Both of these factors mean that you need to plan for retirement and long-term healthcare costs.
You will need investment strategies that allow you to take advantage of tax savings while also reducing your risk of any early illness onset. Healthcare costs are on the way up, and since you may live longer than your parents did, it is critical to have some mechanism in place to cover your future medical costs.
3. Protection Against Inflation
With the help of financial experts, you can develop a retirement strategy that helps you fight back against inflation. Investment gains in a simple savings account may not be enough to keep up with inflation, but with the help of investment strategies created by your financial advisor, you can often significantly reduce the impact of inflation on your earnings.
A financial advisor can help you select the best retirement planning strategies to reduce inflation risk, but they could be include investing in precious metals like gold, commodities, or real estate. Most often, there is a combination of strategies used.
More so, by building your retirement plan early, you gain the benefit of having higher interest rates that often accompany increasing inflation costs. That could mean retiring earlier. When you build a retirement plan now, it will continue to work for you for years, building financial health over the course of your life at a rate that’s more than inflation.
4. Tax-Advantaged Retirement Savings
Most people want to take advantage of any opportunity available to them to reduce the amount of money they have to put into savings. One way to do that is to not have to pay as much in taxes. With tax-advantaged retirement savings accounts available, you are reducing how much taxes you pay now or pay later, depending on the strategy you select. Tax benefits are one of the most lucrative ways to protect your financial future.
If you want to retire early, retirement accounts are one tool to enable that to happen. These tax-advantaged accounts, such as a 401(k) from an employer or an IRA or Roth IRA you establish yourself, require you to keep money in them over the long term until you reach your retirement age.
Create a tax strategy during your working years that allows you to minimize how much tax you pay each year on your income. More so, if you have access to an employer-sponsored retirement account, such as a 401(k), your employer may be matching a portion of your contributions. That means you are earning more for the time you put in each day, which is going directly into funding your retirement. If you don’t use those retirement accounts, you miss out on money each and every paycheck.
5. Legacy Planning
Retirement plans may be meant to be used for you during your lifetime after you stop working. However, they are investment strategies that allow you to pass on your wealth to future generations. Retirement benefits are a component of your estate, which means that you can utilize them as a part of the assets you pass on to heirs when you die.
A comprehensive retirement plan typically includes an estate plan and legacy planning. Both of these components enable you to make key decisions about the allocation of your assets after your death. Estate planning should include the establishment of trusts and wills, which may help your estate reduce some of the taxation it faces at the time of your death. Early retirement planning gives you more opportunity to build a comprehensive plan. That could include:
- Strategies for avoiding probate
- Wills and trusts to help you decide what happens to your assets
- Life insurance policies to help fund your legacy goals
- Legal protection for dependents
- Reduction of family disputes
- Protection for your business
All of this comes from your ability to create a retirement plan now and start working towards funding it. A financial advisor can help you do that every step of the way.
What can an advisor do for you? Even if you’re not sure what type of strategies are best suited for your financial future, you can use our free advisor match tool to find a professional that can offer authentic guidance.
Why Delaying Retirement Planning Is Risky
Also consider the opposite side: a lack of financial planning. You may be relying on Social Security benefits to pay for your lifestyle in retirement, but there is serious concern about those benefits being enough to meet the needs of today’s seniors, not to mention those who may be 20 or more years from retirement.
The longer you wait, the less time you have to build your wealth and the more financial stress you face. Consider the consequences that could come from not having enough retirement savings in place now.
1. Running Out of Money
You may know what your living expenses are now, but what will they be when you enter retirement? Many people hope to have their mortgage paid off and no debt entering retirement. Yet, that does not always happen. More so, your retirement lifestyle could include new expenses you have not thought of, including travel costs and out-of-pocket expenses for medical care and long-term care.
One of the reasons why retirement planning delays are costly, then, is that you may not have enough time to put enough money into your savings to meet these costs. Running out of money is a real risk.
2. Working Longer Than Desired
Your objective could be to work to full retirement age and then count on your retirement accounts to cover you along with the benefits you get from the Social Security Administration. The problem with this strategy is that many people reach that age and still do not have the financial means to secure retirement objectives.
That could mean you are pushing yourself to work longer. Working longer could be beneficial to some people, especially those who remain healthy. What if you do not, though? If your financial wellness relies on your health allowing you to work into your 70s, that could be problematic.
3. Limited Lifestyle Options
Do you have specific retirement objectives? Perhaps you want to invest in personal growth by learning something new, providing support for the community, or traveling. To retire comfortably, you have to consider the specific type of lifestyle you plan to live during your retirement years. If you do not put enough money away during your working years, and you have few income sources during retirement, your objectives to see the world and achieve other goals become much more limited.
To retire comfortably, you have to know how much you need to meet your future financial situation. Then, increase your retirement savings objectives to reach your desired lifestyle objectives.
The key to financial planning is realizing that the sooner you take action, the more opportunity you have to shape your future. With the help of a financial planner, you can learn how to reduce your taxable income, create a financial future that lets you do the things you like, and protect your family from estate taxes. This gives you the ability to choose the lifestyle options best suited to your needs.
4. Financial Strains Due to Rising Costs
Your current income may seem like enough to meet your objectives now, but can it help you achieve your long-term goals as financial costs rise? Inflation can significantly impact overall financial well-being and how much money you need during retirement to maintain the desired lifestyle. If you do not take the time to start planning for those increasing costs (from utilities to taxes, you may find that your retirement years will be met with frustration.
Alternatively, by putting in place strategies now, you could create multiple income streams to help you navigate any harsh circumstances. With investment advice from a financial planner, you can create a plan that helps you avoid the impact of ever-rising costs of life.
Final Thoughts: Retirement Planning Is Important
With significant tax advantages, the need for a solid retirement income so you can live the retirement lifestyle you desire, and the opportunities to create an estate plan that better reflects your desires, you need to consider retirement planning’s ability to create financial well-being for you. More so, if you want to retire early, you’ll need to maximize the time for investment growth, which means acting now, not later.Turn to a financial planner who can help you compare the retirement plans best suited for you and provide investment advice that creates the future you desire, no matter when you plan to retire. Retirement planning is important, and the sooner you get started, the better. Invested Better can help. Use our tools to find a financial advisor that meets your needs and objectives. Let them create a plan you feel confident in.
