Financial planning for retirement is vitally important, but many Americans struggle to save enough money. In fact, approximately 22 percent have less than $5,000 in savings for retirement, according to data published in a 2019 Northwestern Mutual Planning & Progress Study. Financial planning is the strategic process of planning for future expenses, such as retirement. This comprehensive evaluation of an individual’s current income and future financial state is used to determine future assets, income and withdrawal plans. A financial plan can help aging adults build wealth, pay off debt and make investments for a secure retirement.
Reasons Why Financial Planning For Retirement Is Vitally Important
Financial obstacles are common and often unexpected. Although it is okay to be optimistic about one’s financial future, it is also important to be prepared for the unknown. In addition, relying on Social Security or a pension can be risky as these sources of income may not be sufficient for a comfortable retirement. Part of financial planning involves building a nest egg and ensuring that all financial obligations are dealt with before retirement hits. By starting the financial planning process early on in life, adults can gradually build up their savings and reach a more satisfactory level of wealth.
Some of the top reasons to consider financial planning for retirement include:
Maximizing Your Pension
Although the use of pensions as employee benefits is not as common as it used to be, some adults have accumulated significant pension benefits over several years or even decades. Financial planning can help maximize pension benefits to potentially ensure that adults can walk away with as much money for retirement as possible. Increasing salary and building up the number of years a person works for a particular company can translate to a larger pension. Delaying Social Security as long as possible past retirement age may also equate to a larger pension check.
Future Financial Security For Your Family
Most people want to provide their family with financial security but doing so can be challenging without a solid plan in place. Financial planning requires organization and the ability to stick to a budget. There are multiple ways that adults can begin building wealth for their family, such as setting up automatic monthly contributions to a retirement plan, such as Roth IRA or employer-sponsored 401(k). Focusing on spending habits and reducing the amount spent living a luxurious lifestyle can also leave more money to put towards savings or investments. Adopting a “pay yourself first” strategy can ensure that there is always some money going towards financial goals.
Minimizing Tax Liabilities
Financial planning for retirement can potentially help minimize tax liabilities. The key to reducing a person’s tax liability is by reducing the amount of gross income that is subject to taxes. Transferring pre-tax income into a retirement plan, such as a 401(k), is a simple way to minimize a person’s taxable income for the year. If an employer-sponsored plan is not available, a traditional IRA can also be an effective way to minimize tax liabilities. Selling investments that have suffered a decline in value since their purchase can also reduce a person’s tax liability for the year. This process is known as tax-loss harvesting.
This is for informational purposes only and should not be construed as tax advice. Please consult your tax advisor.
Easy To Budget For The Future
Financial planning provides a broad look at a person’s finances. With data collected for financial planning, it becomes easier to budget for the future. Financial planning involves setting short-term and long-term goals and developing strategies to reach these goals based on income, investments and the timeframe in which the goals need to be met. Budgeting allows individuals to modify their finances to make it possible to reach these goals within the specified timeframe.
Protection For Future Risks & Liabilities
Everyone faces certain financial risks, some more than others. The amount of risk that a person faces is directly related to their income, amount of money invested, their assets and how they approach financial planning. With a better understanding of these risks, a person is better equipped to make informed decisions about their money. Financial planning provides some visibility of the future and how a person will be able to deal with certain emergencies or problems that arise. Proper financial planning allows individuals to be ready for unavoidable or unexpected situations without causing major disruptions to their financial goals.
Reach Out To A Professional Financial Planning Firm
Financial planning for retirement is vitally important and can be a complex process but the reward is worth the effort. Working with a reputable financial planning firm can help the process go much more smoothly and help ensure that goals and objectives are met. Financial planning services range from tax planning and estate planning to investment planning and budgeting. To learn more about the importance of financial planning for retirement or to speak with a professional financial planner, contact the advisors at Campbell Wealth Management, Inc.