Financial planning for retirement has got to do with planning that deals with your finances.

How do you go about planning it so that you’re financially sound and secured in your golden years?

Well, you can achieve strong financial security and a sound financial position by:

Expecting at what age you want to retire. This has great impact on your financial position and the amount you need to save. If you schedule to retire at age 55, then get ready to amass an amount that will last you at least another 30 or 40 more years, because life expectancy now averages around 80 years. You should make sure your savings can last as long as you do. The younger the age you retire, the more you’ve to accumulate the savings, to fund your retirement years. How much then will you need? A rule of thumb is that you’ll need to replace 70 to 90% of your pre-retirement income. If you’re making $60,000 a year (before taxes), you might need $45,000 to $55,000 a year in retirement income to enjoy the same standard of living you had before retirement. (However, no rule of thumb fits everyone) Think of this as your annual “cost” of retirement. The lower your income, normally the higher the portion of it you will need to replace. Expenses typically decline for retirees: taxes are smaller (though not always) and work-related costs normally disappear. But overall expenses may not decline much if you still have a home mortgage and huge credit card debts to pay off. Large medical bills may inflate your retirement costs too. And much will depend on the kind of retirement lifestyle you want to lead. If you plan to live a quiet, modest retirement in a low-cost region, you need a lot less than if you plan to be active, take expensive vacations and live in an expensive region Starting to save, as early as possible. If you’re in your 20s (or 30s), it’s good time to start now. The power of compounding when it comes to money is tremendous. The longer the time you let your money to compound, the faster it grows, into an handsome pile, ready for your use when you retire. Signing up for a 401(K) if your company offers this retirement savings plan, is a good point to start. Contribute as much money as you can per month, from your paycheck, which your employer may match, up to 50% of your contribution. If say, your employer matches 50 cents for each dollar you contribute, this is an immediate 50% return. There’s no other investment that will yield you this kind of guaranteed return. So go for it. Find out how much your employer match is and how much you need to contribute to get the most out of it Investing in a portfolio that consists of a well-mixed of stocks and bonds that can offer you long-term growths and reasonably high, lucrative returns. If you’re young, your mix of stocks and bonds should be 70: 30 preferably as more investments in stocks though entail a higher risk of loss, your returns are higher, hence your pile of money grows faster. If you’re older, you should take lower risks and maybe invest mostly in bonds that will guarantee payouts over time with lower returns. This is also to shield you the pain from losing money….. When you’re young and you lose money, it’s a minor setback which you can recover, with time on your side. But when you’re already in your 50s and 60s, it’s a major setback that could spell financial disaster for you. It’s best to dump 70% of your money in bonds, perhaps 20% of it in growth funds and the last 10% in long-range return funds

Yes, financial planning for retirement takes some effort; it doesn’t just happen by itself. You will need to dedicate time and discipline to prepare your strategy. But it’ll worth your effort when you reach that required pile of money for your retirement.

By: Cecelia Yap