The three-legged retirement stool! Many of us have heard about this term.
Yes, just as minimum 3 legs are required for a stool to be stable, likewise a good retired life stands on 3 legs.
It can be said the 3-legged stool of investing and retirement consists of pension, social security income, and personal savings.
Let’s discuss them in brief.
The financial advisors always say that you should start planning for your retirement the day you earn your first paycheck. However silly it might seem to be, it is a fact. Start early and take advantage of the compound interest. It is basically earning interest on the accumulated interest. So, it’s a great advantage if you start early.
You need to calculate how much you’ll need to retire comfortably. The average life expectancy in our country is under 80 years of age. However, statistics also point to the fact that about 22% of men and 34% of women will live till 90 years of age. So, it’s better you prepare for about 25-30 more years after 60-65 years of age depending on the time of your retirement.
First of all, you should start contributing to a 401(k) plan. You can open one through your employer. Try to contribute sufficiently to get the maximum match from your employer. One of the greatest advantages of this retirement plan is that you have to pay tax only on withdrawal after retirement. And, the money you’re depositing into your 401(k), you can get a tax deduction in that year. However, you’ll have to pay a tax and penalty if you withdraw an amount from your 401(k) before 59 and ½ years of age.
You can also open an IRA (Individual Retirement Account) to make your retirement more secure. Right now, you won’t get any tax deduction since you contribute post-tax money. But, when you withdraw after 59 and ½ years of age, you won’t have to pay any tax.
Social Security Income
Next comes the social security leg. This benefit continues for your entire life after retirement.
The SSA (Social Security Administration) has calculated that the maximum amount of claims occur at 62, 65, 66, and 70 years of age. If you delay your retirement age till 70 years, you’ll get delayed retirement credits that will increase your social security payouts every month.
Among the new social security changes, one of them is that at full retirement age, no one can take home more than $2,861 (an increase by $73 from 2018) monthly. This amount is usually is constant even if you’ve earned millions of dollars in your career. But the amount may rise a bit at your time due to inflation.
The financial investors say that usually, this leg of your retirement stool can substitute about 40% of your pre-retirement income.
While talking about social security income, know that this is taxable for certain income level groups. For married couples, you’ll have to pay tax if your adjusted gross incomes cross $32,000.
So, take this into account when planning for your retirement.
I feel the most crucial leg in the 3-legged retirement stool is your personal savings. It completely depends on you how much you can save.
Apart from saving for retirement, you also need to have an emergency fund. Try to save about 5-6 months’ of your lifestyle cost in this account. It will help you avoid debt during an emergency.
Also, set short and long term goals and plan a budget based on that. Try to save more by distinguishing between needs and wants.
One of the major aspects of managing your personal finance and savings is debt. Plan in a way such that you don’t retire with debt.
Even if you can distinguish between good and bad debt, then even, it is a wise decision to pay off your mortgage loan before you retire.
So, if you’re in debt, try to pay them off as fast as possible.
For example, if you have payday loans and personal loans, you can consolidate or settle it to pay them off fast. To get rid of payday loans or PDLs, you can settle your payday loans and repay them by paying less than what you owe. Likewise, if you have multiple credit card bills to pay them off, you can consolidate or settle as per your financial condition. While doing so, just remember that consolidation can help you improve your score whereas settlement may impact your score negatively.
Along with it, be current on your other loans so that you can pay them off within a fixed time. If required, you can refinance the loans to pay them off early.
So, calculate and carefully make your financial decision. If required, you can talk to a financial advisor to plan your financial moves and have a secure financial future, along with a peaceful and stress-free retired life.
This article was written by OnlinePaydayLoanConsolidation.com