When first entering the workforce, many new professionals may not fully understand what retirement planning is and why it is so important for their long-term financial health. Understanding retirement planning can not only reduce the risk of financial hardships in the future, but it can also help determine what your retirement could look like. Before committing to a retirement plan, it is crucial to understand what it is specifically and what is important to know about it.
What Is Retirement Planning?
In its basic terms, retirement planning refers to the process of setting goals for saving money throughout one’s career to utilize upon retirement from a job. A retirement plan is set up using a person’s income throughout their career to ensure that they are able to retire later on in life. Retirement plans can contain various investments or gain and are often offered through a person’s workplace. The most common examples of retirement plans offered through the workplace include a 401k or IRAs.
When Should A Person Begin Retirement Planning?
Most financial experts will recommend starting a retirement plan in their 20s, as the earlier a person starts, the better the retirement savings will be later on. Additionally, creating a retirement plan early can also help expand one’s ability to focus on investments as one moves throughout their careers. Investments are a common way for individuals to continue expanding their retirement savings without the need for a higher paycheck.
What Are The Stages Of Retirement Planning?
There are three stages of retirement planning that a person should be aware of. The first stage is the early adulthood stage and focuses on individuals between the ages of 21 and 35. Individuals in this age group should focus on starting savings that can be used for both retirement and investment purposes. This is the stage where a person should focus on putting aside money from every paycheck.
The second stage is early midlife and focuses on individuals between the ages of 36 and 50 years old. Individuals in this stage will continue to increase their retirement income through paychecks and retirement plans like a 401k. This is also the stage where a person should consider what investments they want to make. Adding assets into a person’s retirement plan can help continue to build on a person’s savings over time.
The third and final stage for retirement planning is later midlife and focuses on individuals between the ages of 50 and 65 years old. At this stage, individuals should have a substantial savings account that can be utilized upon retirement. Individuals in this stage should also examine if they need to continue saving money through investments or paychecks.
No matter what stage a person is with their retirement planning, it is important to start early and remain disciplined throughout the process. This can help ensure that they will be adequately prepared for retirement.