Creating a Retirement Savings Plan
Preparing for your retirement should involve plotting out a route and pausing along the way to check the map. This kind of map is called a financial plan.
There is no hard and fast rule as to what a financial plan should contain. It can be very simple or extremely detailed. You can develop it yourself or seek the advice of a professional financial advisor. Regardless of the scope of your plan, here are six steps you should take:
STEP 1: Get organized.
Take some time to organize your financial papers. You’ll need to refer to them as you create your plan.
STEP 2: Set your financial goals.
List everything you’ll want to have money for in your retirement, such as travel, medical care and day-to-day expenses. Also list the things you need to save for before reaching retirement, like sending your kids to college.
STEP 3: Evaluate your cash flow.
Review your finances to determine how much income you currently have and how much you currently spend. Also determine what you can expect to receive in the way of Social Security benefits and other retirement benefits after you retire.
STEP 4: Calculate your net worth.
Your income and expenses are only part of the financial puzzle. You also need to identify everything you own (your assets) and everything you owe (your liabilities) before you can tell how realistic your goals are.
STEP 5: Adopt strategies for achieving your goals.
Determine how much money it will take to reach each of your financial goals, as well as how long it will take to get it. Remember, life’s full of surprises. Allow for changes such as illness, divorce, or a layoff. These can affect your financial situation. And don’t forget to factor in inflation.
STEP 6: Implement your plan.
It’s never too early to begin. Once you have your plan in writing, start carrying it out!
STEP 7: Review your plan on a regular basis and modify it if necessary.
You’ll probably need to tweak your plan from time to time to reflect changes in your circumstances as well as changes in the economy or tax laws.