retirement

It’s Never Too Early to Start Planning For Retirement

For many young, working professionals, retirement is a far-off thought that doesn’t require any urgency or immediate planning. In reality, it’s closer than you may think. While you may be busy working right now, before you know it, it’s time to retire. To ensure you’re in a healthy spot financially, there are steps you can take in the present day to make that a reality.

Retirement will look different for each individual, but a common goal is to have enough money set aside to enjoy those post-professional years. It’s never too early to think about your future, especially when it comes to your finances.

Let’s look at a few tips and pieces of advice that will help you take the first steps.

How to Get Your Finances in Order

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When you reach retirement age, you’ll likely be ready to leave the workforce and enjoy more time with your family. To live comfortably, your money must be set aside now and as often as possible. Getting your finances in order is an essential step to living your retired years more fulfilled.

1. Making Early Contributions

While it may seem like a distant future, your retirement will be here before you know it. Contributing money early is one of the most important steps you can take to ensure you can live comfortably when you’re no longer working.

This doesn’t necessarily mean you need to put every spare dollar you have into a retirement account, mainly because many working professionals cannot afford to make drastic contributions. The good news is that every dollar counts, and even if you start with small deposits and work your way to more significant contributions, you’re making an impact. As you transfer more money throughout the years, interest will compound, and you’ll be left with a more significant balance.

2. Practice Smart Spending Now

Depending on how much you’re able to save over the years, your disposable income may vary. However, since you won’t be working anymore and receiving a steady income, you will be operating on a fixed budget. When that time comes, the spending habits you’ve procured as an adult will likely impact how you’re able to make your money last throughout your retirement.

Do you have a substantial budget in place? Are you able to spend less money on variable expenses like entertainment and instead put those funds into your savings? Do you know how to stop sales at the grocery store to save money? These habits will stick with you as you age, and if you know how to balance responsible saving with enjoyable spending, you’ll have the tools you need to make your money last throughout your golden years.

3. Deal with Your Debt

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The longer you build up debt, the more challenging it becomes to pay it off and live comfortably. It’s essential to get out of debt well before retirement to enjoy the money you’ve saved rather than paying off creditors.

Consolidating your debt is a resourceful way to streamline your payments. Working with alternative lenders like Flexmoney.ca is a convenient way to access funds without the paperwork and extensive interviews associated with traditional lenders. The goal is to pay off as many debts as you can, so you’re left with one or two payments to keep track of. Once you can get out of debt, you can use your income to save your retirement accounts.

Key Pieces of Advice

Thinking about retirement can feel overwhelming, especially when it comes to the financial aspect. It’s important to know how to approach this new phase in your life and just as important to know which steps you can take in your early working years to maximize your enjoyment later on.

1. Understand Your Area’s Taxes

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Do you know how much of your retirement fund is tax-free? Understanding the tax proceedings in your area will likely impact how much you should aim to save today. If your withdrawals are tax-free, then you can rest easy knowing you aren’t losing any of your contributions. On the other hand, if your accounts are subjected to taxes, you can now decide to try and contribute more of your income to offset those losses.

2. Stay Up-to-Date with Your Finances

Making a point to schedule regular financial check-ins is a beneficial habit to put into practice as early as possible. Setting aside a quarterly or yearly meeting with your financial advisor is a smart way to hold yourself accountable and examine where you could make even better spending or saving choices.

When you prioritize checking in with yourself financially, you’re creating a healthy habit that will follow you well into retirement. When you’re living on limited capital, you’ll want to ensure you’re always up-to-date with your finances so you can trim your spending accordingly or treat yourself to that vacation you’ve always dreamed of.

3. Plan For Your Lifestyle

As a working professional, you should have an idea of how your spending affects your desired lifestyle. While your habits may change slightly as you age, certain lifestyle traits will likely remain the same — for example, if you love to travel, chances are this will still be a part of your personality even after you’ve retired. To ensure you’re able to enjoy travelling, your savings will need to reflect this.

On the other hand, if you prefer a low-key lifestyle and are on the frugal side, you may be able to stretch your money longer. The key is to clearly understand your spending habits and how you enjoy spending your free time to ensure you can match that when working with limited money.

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When it comes to thinking about retirement, it’s never too early to start making plans. Creating healthy spending and saving habits early on will set a positive precedent as you move into the next phase of your life. Knowing how to balance your finances now and making contributions to your investments and retirement accounts is the simplest way to ensure you have everything you need when you reach that milestone.

What Is a Pension Plan and Should I Have One?

A pension plan or retirement plan is a savings plan through which you will save money for retirement. The retirement years are golden years where your earnings will be almost zero. You can consider them as insurance as well as investments. The insured will contribute a regular premium to the insurance company. The premium will be used to build the corpus. After the maturity date, the corpus will be paid to the insurance company and the insurance company will pay the amount on a monthly basis. If the insured person dies, the beneficiary will get the sum assured and bonuses. 

The regular payouts that you get from it are called annuity. You can choose the monthly, quarterly, half-yearly or annual payout as per your convenience. 

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Types of Pension Plan

There are two types of annuity plans. They are differed annuityand immediate annuityplan. 

  • Deferred Payout – If you opt for the former, the premium will be paid in monthly, quarterly, and annual basis. The annuity will commence as per the time period specified in the annuity contract. 
  • Annuity Payout – If you go for the latter, a lump sum will be paid as a premium to the insurance company. The annuity will begin immediately. The annuity will continue throughout the policy term or the life of the policyholder. 

Tenure

There are two types of pension plans based on tenure. 

  • Fixed-term annuity

With the life annuity pension plan, the annuity will be paid to the policyholder until the death. 

In case of the fixed term annuity pension plan, the annuity will be paid to the policyholder until a fixed term as per the terms and conditions of the policy. In most of the cases, the payment term will be earlier than the death of the policyholder. 

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Benefits 

There are many benefits associated with this. You will accumulate a corpus for the golden years while you are young and energetic. 

  • The amount paid in the form of the premium will get exemption under Section 80CCC of the income tax act. 
  • You should choose either a deferred annuity plan or immediate annuity plan as per your needs. 
  • During the accumulation stage, you will contribute on a regular basis. You can get income post-retirement in the form of pension. 
  • If you don’t require pension immediately, you can choose annuity deferred pension plans. If you start a subscription to the pension policy at an early age, as there will be sufficient time to build the corpus. 
  • With the help of the immediate annuity plan, you will get a pension immediately. It is considered a non-participating deal. The policyholder will not get benefits such as bonus. 
  • The immediate annuity plan can be subscribed by any individual above 30 years of age. You can pay a lump sum amount to the insurance company and the monthly pension will start immediately. If you do not have any other source of income, you can choose the immediate option.
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Retirement Calculator

To build the corpus as per your needs, you can use the retirement calculator. If you enter the cost of living, inflation rate, retirement age and number of years (that you expect to live after retirement), you will be able to calculate the corpus without any issues. 

The need for it

You need this to manage the regular source of money after retirement. It is possible to maintain the lifestyle without any issues when you get monthly income. 

  • The rise in life expectancy, rise in health costs and absence of government-supported pension plans, will compel an individual to choose a comprehensive pension plan. 
  • There are various kinds of deals to safeguard your interests. By choosing a Unit-linked pension plan, you can expect higher returns. However, there will be a great risk to your capital. 
  • You can enjoy tax benefits on the premium and the corpus that you build through the pension fund will be utilized to purchase an annuity. As there are various types of annuities, you can choose the most appropriate annuity to fulfill your needs. 
  • You will manage financial independence in post-retirement life by choosing the best option for you
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Conclusion

The pension plan will regular money when you do not get paid after retirement. You should have great peace of mind after retirement. The hobbies and your commitments should be fulfilled with a steady source of income. You can become financially independent. Even though you have access to the retirement strategy provided by the government or your employer, you should go for a comprehensive retirement plan to fulfill your needs to the best possible extent.