What are the Best Tips for Financial Planning for Retirement?

Many people plan for their retirement decades in advance. The average person spends at least 20 years in retirement, and the so-called "golden years" can be expensive. There are many ways to prepare for this life phase, and financial planning for retirement is imperative for one's financial security. Some of the best tips for financial planning for retirement include knowing exactly how much money a retiree will need, investing in several different types of retirement plans and sticking with solid, preset financial goals.

Most future retirees need to start thinking about retirement at least 20-30 years before actual retirement. This forward-thinking mindset allows a person to begin saving money early and provides flexibility for unforeseen obstacles or major changes. One of the first steps in financial planning for retirement is clearly identifying how much money will be needed. For example, the future retiree needs to think about where he or she plans to live in retirement, whether that is in his or her current home or an exotic, tropical destination.

Many retirees want to have the same quality of life that they do in pre-retirement. It is estimated that even after cutting some expenses, most retirees will need at least 70 percent of their pre-retirement income to maintain the same lifestyle. This number will go up if the retirees plan to vacation often or want to take up expensive hobbies. Financial planning for retirement should include estimating for higher costs of living, such as inflated taxes, medical bills and grocery costs, as well.

Another one of the major keys to successful financial planning for retirement is diversifying retirement investments. Most financial planners advise future retirees to take full advantage of their company’s pension or profit-sharing plans. Some companies have eliminated pension plans and offer tax-sheltered savings plans as part of their company-sponsored benefits in the area of financial planning for retirement. These plans often can be transferred from employer to employer. These funds are added to the account before taxes, and many employers match a percentage of contributions.

Some other types of retirement investments include individual retirement accounts (IRAs). These accounts allow individuals to put money aside each year while also gaining tax advantages. Future retirees can choose between different types of IRAs. These types vary in how contributions and withdrawals are taxed as well as the after-tax value of the money after withdrawal.

Successful financial planning for retirement often requires setting goals far in advance and sticking with them. This means that future retirees should not dip into their retirement savings during hard times. Future retirees should focus on paying off current debt, such as credit card debt or mortgages, so that they have already eliminated costly monthly payments when they reach retirement.