Whether you’ve been working hard for 30 years or are just three months into your first job, it’s always wise to plan ahead for retirement. After all, one day you will close the chapter on your career and start the next adventure. But what you get out of tomorrow depends on what you put into it today – and how you handle bumps along the way.
Here’s a look at how to possibly prepare for potential pitfalls.
- Short-sighted savings. This is where proper planning plays a big part. Savings generally take time to grow, so you may wish to consider saving and investing early to take advantage of compound interest and long-term stock gains. Be sure to participate in 401(k) plans or IRAs. They are sound options for building retirement savings. You may also want to consider boosting personal savings by having your bank withdraw from a direct deposit paycheck into a savings account. Even though these banks credit your account with low (or no) interest – and thus offer limited growth potential – this can generally be an easy and conservative way to set aside cash regularly.
- Career interruptions. In today’s economy, you can never be sure of your job stability – or of your ability to quickly find a new job if you get laid off. That’s why many believe it’s critical to maintain an emergency fund to cover 6-12 months of living expenses. If you withdraw money from your retirement savings, especially a qualified retirement plan, you may incur tax penalties on the withdrawal while also cutting into the account’s value over time.
- Unforeseen illness or injury. According to the Social Security Administration, about one in four 20-year-olds working today will become disabled before they retire.1 It’s a startling statistic with serious consequences. If you get sick or hurt and have to go on long-term disability, your employer may have the right to terminate your position – and with it, your ability to continue contributing to your 401(k). This can potentially have a considerable impact on your retirement savings.
- Debt. From credit cards to home loans to paying off your children’s college education, debt has the potential to derail your retirement plans. Debt, when not properly managed, may lead to low credit scores, depletion of your retirement savings, or even bankruptcy. Unmanaged debt may also make achieving your foundation of retirement planning – the accumulation of assets – more difficult and potentially more expensive. The key is to pay down debt while properly balancing it with your financial priorities.
- Life events. You can save early and save often for retirement, but something may happen that puts those savings at risk. Maybe your child’s college scholarship falls through or an aging parent suddenly needs full-time care. To circumvent this, consider planning for the unexpected with a whole life insurance policy that builds cash value over time. Of course, one of the most important parts of life insurance is the death benefit, which helps protect your loved ones by providing a financial benefit when you die. But, instead of digging into your retirement savings to pay for unforeseen expenses, you may be able to access the cash value in your whole life insurance policy to cover some of these costs. Or, later in life, you may use your cash value to supplement a shortfall in your retirement income.
Taking steps ahead of time to prepare for potential and real obstacles can help you enjoy life’s next adventure: retirement.