If you think you’re too young for retirement planning, think again. It’s never too early to start thinking about your retirement and planning for the unexpected. Early retirement planning will ensure you can accumulate the wealth you need to support yourself when you eventually retire from work. And estate planning is important for letting your loved ones know what you would have wanted in the event of an unforeseen illness or accident.
Confronting these difficult decisions can be tough, especially when you’re young and healthy and retirement feels so far away. Consider working with a law firm for help getting your estate plan in order. They can take a lot of stress out of the planning process and make sure you’re prepared for anything going forward
Calculate Your Assets
It’s important to start with an accurate picture of your assets so you have a solid understanding of your current financial situation. Calculating your assets doesn’t have to be a headache. For example, to calculate your home equity, all you have to do is subtract the amount you still owe on your mortgage from the current market value of your property. Once you have an accurate picture of your assets, subtract your liabilities—such as the remaining mortgage on your home—to determine the total value of your estate.
Understand the Tax Implications of Transferring Wealth
Next, you will need to determine whether or not your estate will owe federal estate taxes when your wealth transfers to a beneficiary. The federal exemption is adjusted each year for inflation—for 2022, the exemption amount is $12.06 million. While this might be more than enough to prevent your assets from being taxed on the federal level, keep in mind that state estate tax and inheritance tax exemptions tend to be much lower. It’s also important to remember that your life insurance policy counts towards your total assets, which could put you over the exclusion amount.
Document Your Health Care Wishes
Part of estate planning is documenting your care wishes in case you become incapacitated for some reason. If an accident or illness prevents you from making decisions for yourself, these documents will ensure your wishes are carried out. For example, as BusinessWest.com explains, a healthcare proxy is a document that specifies who will make medical decisions for you if you can’t make them on your own. If you also want to appoint someone to make decisions regarding other issues, including your finances, assets, and will, you will need to designate a power of attorney.
Start Saving for Retirement
When it comes to saving for retirement, the earlier the better. Putting money away now will help you get the most out of compound interest—when interest on your savings begins to earn interest. Take advantage of your employee benefits like pension plans, life insurance, and stock options to bank up your financial portfolio by putting a portion of your paycheck towards retirement. As CNBC explains, contributing to an employer-matched 401(k) plan is the easiest way to start saving.
Avoiding credit card debt will also help you accumulate wealth more quickly. Learn to live within your means and prioritize saving overspending on non-essentials!
Don’t leave retirement and estate planning until it’s too late. While retirement might be the last thing on your mind right now, planning early will ensure you’re prepared for anything! Now is the time to start putting money aside for retirement, drawing up a few legal documents, and deciding what will happen with your assets when you die. A little upfront work is well worth the peace of mind!
Photo via Pexels