10 Ways for Singles to Secure Retirement Finances
Everyone wants to retire and spend the rest of their lives in comfort without worrying about their finances. That dream is definitely achievable, but, to do that, you must prepare...
This story originally appeared on Due
Everyone wants to retire and spend the rest of their lives in comfort without worrying about their finances. That dream is definitely achievable, but, to do that, you must prepare for it as soon as possible. Whether you’re a bachelor or bachelorette, a widow or widower, there’s no better time to start preparing for retirement than now.
Truth be told, being single puts you at a significant advantage in preparing for retirement, as you have complete control of your life and are most likely not responsible for anyone else.
So, if you’re a single looking to get a head start on your retirement savings, keep reading because we’ll discuss how you can secure your retirement finances starting now.
How to prepare for retirement
Before we discuss the various ways to save for your retirement, we’ll first discuss the key steps to prepare for this important transition in life.
Step #1 Assess your current finances.
The first step in every journey is to figure out where you’re starting. The same is true in preparing for retirement; you must start by knowing where you are in terms of finances. To do that, start by assessing your sources of income.
- Do you mostly rely on employment?
- Do you have any sources of passive income?
- Any side hustles?
- Then, using that information, compute how much you earn and spend per year. This process will tell you how much money you have and, at the same time, determine how much you can afford to spend based on your financial goals for retirement.
For a more accurate assessment, including a detailed inventory of all your assets (savings, properties, investments, etc.) and liabilities (debt, mortgages, etc.).
You also need to track and clearly assess where your money is going every month. Keeping even small payments like your Spotify subscription or your credit card’s annual fee in check can go a long way in helping you understand your budget. While the latter won’t be the case if you choose a no-fee credit card, there will always be fixed and variable expenses that may add up significantly, potentially jeopardizing your financial goals. Comparing income and expenses is key to knowing how healthy your finances are.
Doing all these assessments help inform you of the appropriate steps you can take next.
Step #2 Right-size your lifestyle.
Once you know where you are financially — it’s time to confront the question, can you afford your current lifestyle?
You’ll know your current lifestyle is too expensive for your income if you lose money based on the previous assessment. If you’re not losing any money, congratulations, you could skip this step and proceed to the next. However, if you’re the opposite and losing money, maybe, it’s time to downsize here and there and start cutting your expenses.
This could mean anything from moving into a smaller house to cooking your own meals, paying back loans, or reducing unnecessary spending. Whatever you do, the goal is for you to be more profitable annually to build up your assets.
Step #3 Set your target.
Assessing your finances and right-sizing your lifestyle without a financial goal in mind would be useless (it’s not even possible to tell). So, based on your annual income and your right-sized annual expenses, set a realistic financial target you think you’ll need to achieve to live comfortably.
For example, if you currently earn $50k per year and roughly spend $45k annually, your goal should be to earn the same amount annually through passive income. So, ideally, your target could be about $450k in savings, which you can invest in some stocks with 10% APY.
Step #4 Save for emergencies.
Now you have a goal in mind, so you’re itching to start investing and earning those dividends. However, before doing that, you should first prepare your emergency fund.
An emergency fund is money you save in an easily accessible bank account, which you can use in case of a rainy day. Ideally, this fund should at least be 3 to 6 months’ worth of your monthly expenses to ensure that you won’t have to touch your retirement savings at all, no matter what happens.
Doing this step will safeguard you in case (knock on wood) you experience an emergency like losing your job.
Step #5 Invest in assets.
Now that you have your financial goals and an emergency fund, it’s time to invest your surplus in money-producing assets. Keep in mind the word assets. Assets are properties that appreciate, like stocks or real estate. Investing in them prevents your money from stagnating and losing its value because of inflation.
Unfortunately, buying a new car or a new boat is not considered an asset in the traditional use of the word. In some circumstances, these things are even considered liabilities, meaning you lose money just by owning them.
If you want to find recommendations for assets you can invest in, keep reading until the last section of this article, where we’ll discuss how you can secure your retirement finances by choosing the right investments.
Step #6 Estate planning.
The harsh reality of life is that all of us are mere mortals, and our stay in this world is temporary. So, if you pass away, you need to specifically tell your loved ones what you want to do with your assets. Generally, you need an attorney to write your last will. But, the process usually follows these steps:
- Prepare a detailed inventory of all your assets. As we mentioned, an attorney and even an accountant can help you out with this.
- Assign and review your beneficiaries. Once you have a detailed inventory of your assets, make a list of people you want to inherit your assets. If you want, you can even leave your assets to a charity.
- Prepare a list of directives your attorney will implement through a legally binding document. This is just another way of saying, get your attorney to write a legal will.
Step #7 Join a community.
No man or woman is an island, and the same is true for you. So, the last step in preparing for retirement is finding and joining a community you will enjoy. Be sure to be thorough in searching and researching your prospect communities, as they can make or break your retired life.
Remember that whichever community you join, it should be one that will let you live peacefully and full of love and happiness.
Ten Ways to Secure Your Retirement Finances
Now, it’s time for the exciting part. We’ll discuss the different ways you can secure your retirement funds through smart investing.
This list contains different assets you can invest in, which appreciate in value over time through the magic of compound interest. Some of these will even allow you to live off of investment interest.
Having most of these assets will ensure you spend your retirement in the most comfortable way possible—a retirement where you’ll never have to worry about money again.
#1 Social Security
Social security is the safety net that societies put in place to cushion the financial blow of unexpected life events like unemployment, illness, disability, childbirth, or the death of a breadwinner.
Retirement is expensive—analysts believe you’ll need between 70 and 90 percent of your pre-retirement income to live comfortably. Getting a membership and investing in a social security fund as soon as possible benefits you in the long run.
This type of insurance allows you to maintain your standard of living once you start enjoying life after retirement.
To help you save for retirement, the government offers tax breaks for contributions made to Individual Retirement Accounts or IRAs. IRAs are among the best vehicles for long-term financial planning.
You can establish an IRA with little effort. The majority of the population can open one and make deposits. What’s great is that there is no minimum age requirement—however, you must have taxable income. Opening an IRA is quick and easy at most financial institutions.
The primary advantage of a traditional IRA is the ability to delay paying taxes on earnings and contributions until distributions are due. It’s possible that the more money you put away now (and over the years), the more you’ll have to withdraw when you’re ready to retire.
The choice to handle your finances on your own or with the assistance of a financial advisor is yours. You can also use the automated route and have your investments tracked and regularly rebalanced if you want.
You should already have a 401(k) if you currently work in a company, especially since many companies provide employees with access to 401(k) plans, which allow them to save for retirement while enjoying favorable tax treatment.
When you, as an employee, enroll in a 401(k), you consent to have a set amount of your income automatically deducted and deposited into a savings or investing account. So, it’s usually a set-it-and-forget-it type of deal.
As an added benefit, you’ll also reduce your taxes using this plan since your company deducts it from your paycheck before applying federal taxes.
#4 Long-term care
If you qualify for long-term care (LTC) insurance, it’s something you should definitely consider, especially if you’re single and planning for retirement. LTC pays for all or a significant portion of care received at an assisted living facility or home once you reach a certain age, so you won’t have to worry about being left old, sick, and broke.
Stocks are popular assets to invest your money in. You may have already heard about this from people around you or even on the media you consume. Stocks are individual shares that make up a company’s ownership. Thus, buying and owning a stock means owning a single share of the company.
The stock market is an excellent way to diversify your portfolio, grow your wealth, and shield your assets from the effects of inflation and taxes. You’ll likely see solid gains if you’re willing to invest in stocks for the long haul.
Bonds are a relatively safe investment because these are usually issued by a government, municipality, or corporation (usually to raise money).
Typically, people invest in bonds because this guarantees a steady flow of cash in the future. A bond’s interest is usually paid semi-annually. It is the type of investment that can help you keep more of your money, thanks to the fact that you earn your original investment back if you patiently wait for the bond to reach maturity.
In addition to our earlier discussion of stock investment, where you earn money as a consequence of the stock’s value going up, there are other ways to profit from investing in a company—dividends!
Even when capital gains are difficult for the corporation, investors can still get paid with dividend stocks. So basically, there are two ways to profit from these investments: the steady income from dividend payments and growth in the stock price.
#8 Treasury bills
Like bonds, Treasury Bills (or T-Bills) are among the most secure and risk-free investment options available as the government guarantees them. The country’s treasury issues short-term debt instruments, the T-bills, with maturities ranging from a few days to a year.
Additionally, T-bills have low initial investment requirements, and the interest is not subject to income tax at the state or local level. However, it is still taxed at the federal level. There’s a trade-off, though, since less risk also means less potential yield.
If you want to invest in treasury bills, you can easily buy them from the secondary bond market.
Annuities are another investment option that is helpful post-retirement. Retirees commonly purchase annuities as a means of securing their income. They are contracts that guarantee payments at regular intervals for a set length of time or even for the rest of your life.
If you pass away before your benefits kick in, any money you have invested will go to your designated beneficiary, depending on the particular type of annuity you purchased.
#10 Invest in real estate
One of the most important assets one may have is real estate. A safe and secure home is necessary for everyone at all times. Unlike paper assets, real estate can be sold quickly and rarely loses value (unless there’s a bursting bubble or something). Residential housing has the potential to generate the most steady revenue.
Most importantly, the land is an immutable investment that never loses value. As time passes, this will continue to appreciate, so selling it later down the line will almost surely turn a profit.
The bottom line
Planning will get you places — including a secure and happy future free of worries (at least financially). Minor adjustments in your current lifestyle and proper management of your assets and income all add up and paint the circumstance of your future self.
You will thank yourself someday for the mindful decisions you make today, so don’t stall anymore and start saving for your financial future.
The post 10 Ways for Singles to Secure Retirement Finances appeared first on Due.