The Importance of Retirement Planning

Do you want to support your current or desired lifestyle after retirement? Early planning should be a top agenda.

Before you start learning the importance of retirement planning, read SoFi’s guide on what is retirement. Here are six reasons you should start retirement planning today:

It Gives Financial Freedom

Managing finances after retirement is one of the biggest causes of stress for older adults. Most people don’t want to be dependent on their children. Timely retirement planning can minimize financial anxiety once the income ceases. Start saving and investing early to support your living costs, medical bills, and travel expenses without depending on a family member.

It will Give You the Opportunity to Diversify Investment Portfolio

Whether you’re retiring in two or twenty years, you will have ample time to look for investment opportunities, such as a 401(k) savings account or an Individual Retirement Account (IRA). Most employers give you the choice of contributing to a 401(k). However, experts consider IRAs a more lucrative source of income after retirement.

Unlike traditional investment accounts, your funds in an IRA grow tax-free. You can withdraw them after turning 59½. In emergencies, you can withdraw your money before the age requirement without paying a penalty.

You Can Avail Social Security Benefits

Government institutions offer many benefits to older adults who reduce their working hours or stop working altogether. Take, for instance, the benefits offered by the Social Security Association (SSA).

SSA covers nearly 40% of pre-retirement income for adults age 62 or above. Depending on your work history, age of retirement, and marital status, SSA will provide support to help you transition into this new chapter of your life.

You Can Manage Debts Effectively

Acquiring debts in your adult life is not uncommon. Student loans, credit card bills, and mortgage payments can line up before you realize what’s happening. Going into retirement with outstanding debts can eat away at your savings.

Find a balance between debt repayment and retirement savings. Prioritize high-interest debts, such as credit card bills. You will also have an estimate of social security benefits, investment revenue, or other passive income streams.

You Can Cover Healthcare Costs

As you age, the likelihood of unexpected medical expenses considerably increases. In 2024, an average faced nearly $165,000 in healthcare costs. Your retirement plan should cover the cost of over-the-counter medications, long-term care, and dental care.

A Health Savings Account (HSA) is a common choice. It offers several tax-related benefits, including tax-deferred contributions and tax-free withdrawals. The funds in a HSA can be withdrawn after the age of 65.

Many medical insurance policies can be acquired at a lower premium when younger. This can help you save for retirement without paying hefty premiums. 

It Will Help You Manage Finances Despite Inflation

Inflation is silently affecting the purchasing power of individuals. Given the current trends, you can face severe financial issues when you retire. Early planning can help you analyze such situations and make investments accordingly. You will have time to diversify your portfolio and take options that are less likely to be affected by inflation.