How To Become Financially Independent With Retirement Planning
What do you envision when you think of financial independence
? If you're like most people, you envision an early retirement, endless vacations, spare time to pursue your hobbies and passions, and a nice, comfortable home that you can share with your loved ones.
You work hard today, so you can make these dreams come true in the future. You are counting down the days until you can retire. As you can imagine, the chances of such a dream coming true without proper retirement planning is remote.
Financial planners recommend that young people put at least 10 percent of their income toward retirement planning. Late bloomers need to invest at least 20 percent into their retirement portfolio.
These percentages represent the amount that people who wish to retire at the traditional age need to save. If you wish to retire early, you will need to double your efforts.
Before you can plan for your retirement, you need to build a strong foundation for the future. If you cannot financially afford to withstand calamity, you may have to dip into your retirement fund to save your home or to pay for medical bills which could eliminate retirement from your life plan completely.
To protect your future, keep at least six months worth of income in an easily accessible account. Do not invest this money. It is your calamity money.
Now, it's time to talk about investments. Employer-sponsored retirement plans are the best option for retirement planning because most employers match contributions made by employees. If your company offers a 401K plan, you should invest the maximum amount that is matched by your employer.
If your employer matches half of your contributions up to 6 percent, invest the full 6 percent. It's free money, and a 50 percent increase on your investment. For every dollar you spend, you will put back $1.50 toward retirement with this plan.
If retirement is still in the distant future, an IRA could be the second vehicle that you can use for retirement planning. Most IRA contributions are not tax deductible; however, the interest earned on these accounts is tax deferred, meaning that you can build up money quickly by taking advantage of compounding interest.
Self employment presents a different set of challenges when planning for retirement. If you long for the security of a retirement portfolio, you can invest in Keogh or SEP plan. These plans work similar to 401K plans but have extra benefits for self-employed individuals.
Some great sources of retirement income include home businesses, real estate investments, rental properties, website development, and more. All of these options can supply you with passive income.
You can literally make money while lying on the beach with these options. And they are ideal for people who may be getting a late start when it comes to retirement planning.
Retirement planning requires consistency and careful attention to detail. Regardless of how much time you have to save for retirement, the key is to create a plan for success and stick with it.
by: Dan Cavalli
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