“Retirement wealth planning” is garnering increasing attention among the younger generation compared to the past. More and more people are planning to retire before the age of 60. This shift in behavior reflects the reality that retiring before the age of 60 is attainable through financial wealth planning, which paves the way for financial prosperity in retirement.
Why is strategic financial planning important? When should you start?
Having a retirement plan can begin as early as when you have your first job or when you become aware that you will need to accumulate sufficient funds to live comfortably without relying on your children. It is better to start early than to do nothing at all. Financial wealth planning can be straightforward when you manage your savings with clear financial goals.
Setting a retirement age goal
Everyone reading this article is certainly in a phase of studying strategic financial planning. One of the most important things is not to forget to set a retirement age goal for yourself. The savings you plan to accumulate will be available throughout your lifetime.
Calculating post-retirement expenses
This step is the most crucial in planning your savings for the future. Calculate your post-retirement expenses accurately to avoid any shortfall. If you stumble, it may impact your entire plan. Calculate your post-retirement expenses by considering the following factors:
- Personal expenses
- Food and beverages
- Travel and leisure
- Utilities, electricity, rent (in case of renting)
And other flexible expenses based on individual lifestyle. Calculate the monthly expenses you will need after retirement, multiply it by 12 months, and then by the number of years you expect to live after retirement. This retirement plan technique will give you the amount you need to save while you are still working.
5 steps to begin preparing your prosperous retirement plan
Life becomes easier when you manage your savings through the following 5 steps of retirement wealth planning:
1. Organize your finances by keeping track of your income and expenses
Keeping a record of your income and expenses helps you identify unnecessary expenses each month. By eliminating them, you can increase your savings.
2. Allocate proportions for savings and spending
Once you know your monthly expenses, the next step is to allocate proportions for savings and spending each month. If possible, aim to save at least 30% of your income.
3. Set financial goals
Set financial goals for your retirement plan by setting your post-retirement monthly expenses. Plan for life insurance, and health insurance, and create a safety net to mitigate risks and provide peace of mind.
4. Save using the 3-basket financial strategy
- Emergency Fund: Calculate your fixed monthly expenses (e.g., $5,000) and multiply it by 6 months. This will give you a reserve fund for emergencies that you should keep in your account at all times.
- Wealth Accumulation: Invest your savings in low-risk assets that provide consistent returns. This creates a passive income stream and increases your wealth in retirement.
- Early Retirement: Invest your savings in high-return assets that come with higher risks but offer greater potential rewards. This is for those who aim to retire early.
5. Regularly review your financial plan
Regularly reviewing your financial plan ensures that your savings goals are on track. Failing to review your plan may cause delays in achieving your retirement goals.
Investment wealth planning to generate passive income
For many individuals, relying solely on income from work is insufficient for retirement savings. Creating passive income through investments becomes crucial. Through strategic wealth management in different assets, you can generate a passive income that supports your retirement lifestyle.
Remember, the key to a prosperous retirement lies in early wealth planning and disciplined financial management. Start today and secure your future.