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Retirement Planning Paper

Autor:   •  October 19, 2015  •  Research Paper  •  3,559 Words (15 Pages)  •  553 Views

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Retirement Planning

There are many reasons why people should save for retirement. The first, very important reason, is for financial security. This includes security against inflation and taxes, so that your lifestyle does not suffer due to increases in the general price level or hikes in tax rates. It is also important to set up an emergency fund, usually three to six months of income, in case of unforeseen circumstances. Another large part of financial security is the continuous streams of income needed during retirement, usually from investments or retirement accounts. It is also important to pay off all outstanding debt so that no funds from retirement savings need to be used to reconcile debt, while it is also important so that it is not passed on after death to your relatives. Funeral costs are also very important to consider when working towards financial security, which is usually taken care of with life insurance policies.

        Another good reason to save for retirement is the feeling of security and not having to rely on the welfare system to finance your retirement. The Social Security System is unstable and the future of the program is unpredictable and the payments you receive are usually far from enough to keep up a lifestyle similar to the one you had during your working life. To save for retirement, one good idea is to use a tax-deferred account so that you have a reduction in income taxes and it also produces a compound effect on your return-on-investments. It is always good to have your money grow instead of sitting in an account collecting dust, so find an account with low fees and high interest rates. Planning ahead using accounts like this leads to you have a much more comfortable retirement than if you wait till a few years before retirement and only have what you, yourself, save in accounts. Also, when you end up having spare change in retirement, you have opportunities for gifting and philanthropy.

        There is also the fact that life expectancy rates continue to rise which means that you will need to plan for even more years after you quit working and enter retirement. You need to be prepared for however many years you have left and never want to be entering the last few years of your life completely broke and wishing you had been smarter about your finances early on. You also never know whether or not you will be able to work until full retirement because of injuries or age-related problems that couldn’t have been anticipated, so it is always a good idea to have cushion in your plan for such problems. You also never know, it could be possible to retire early due to smart planning.

To plan smart, you must put together a plan that is designed around you and fits your specific life and retirement goals. There are seven steps to take when creating your financial plan and ensuring a happy retirement. In the first step you have to set goals. Here you ask yourself numerous questions pertaining to how you envision retirement. How extravagantly will you want to live? When will you want to retire? Who will you have to care for? Where will you want to live? Will you want to travel? These are all very important questions to answer before continuing your financial plan. The second step is the estimate how much you’ll need to meet your goals. In this step you estimate future costs based on 70% to 80% of current living expenses, establish how much each of your other goals will cost, and calculate how taxes will erode your spending power.


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