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How to Plan for Homeownership and Retirement as a Young Adult
As a young professional, estate planning and retirement may not be on top of your to-do list. But it should. According to CNBC, only 36% of Americans report being on track with their retirement goals. Having insufficient funds post-retirement can put you in a precarious position and lead to undertaking unplanned debt. Being in your twenties means that time is on your side, and this article brought to you by The Mommies Reviews will explore various ways to make the best use of it to achieve financial independence.
Set Financial Goals
The first step is to set a financial goal for yourself that meets your future expectations. For instance, some individuals strive to retire as millionaires, while others focus on maintaining their current standard of living well into their golden years. Depending on your goal, you can make a roadmap specifying how aggressive or conservative you’ll need to be with your financial decisions.
Here are important factors to consider while creating goals:
- Your current age
- All sources of income
- All current expenses
- Planned retirement age and location
When comparing your current financial level to your goals, you’ll be able to formulate future steps such as:
- Expected salary you’ll need to earn
- Amount to be saved each month
- Investment instruments to consider
If you’re finding it hard to set clear goals, don’t hesitate to work with a financial advisor. A competent advisor will be a reliable partner in your financial journey, helping you manage money and tweak your goals as needed.
Choose Employers Wisely
When choosing jobs, look for organizations that match your 401(k) contributions. On enrolling in the program, a set amount of money will be automatically deposited from your paycheque prior to being taxed. Additionally, your employer will match your contribution, effectively doubling the amount. A major advantage of this program is that you will only be taxed when you withdraw the money at retirement. As reported by the Insider, the average rate of return for 401 (k) is around 11% per annum, which is much higher than storing your money in a savings account.
Other prominent employee benefits include:
- ESPP: The employee stock purchase program allows employees who have worked in the organization for a set amount of time to be eligible for purchasing stocks at a discounted price.
- Health Benefits: Using employer health programs often requires a contribution from your salary, but are cheaper than purchasing individually. Additionally, some plans provide coverage for other members of an employee’s family as well.
Open a Roth IRA Account
Unlike a 401 (k) a Roth IRA account is not connected to an employer, and as all contributions are with post-tax dollars, you will be exempt from paying taxes when withdrawing your earnings. As of 2022, individuals under the age of 50 can contribute a maximum of $6000 a year into their Roth IRA account.
The rate of return on your investment can vary based on the type of investments you make. To get the best returns it’s advisable to work with a broker who can help invest funds in a variety of instruments such as stocks, index funds, EFTs (exchange-traded funds), and more.
Become a Homeowner
According to research by Franklin Templeton, an investment in real estate acts as a hedge against inflation. This makes owning a home a big plus to tackle market fluctuations in the long term. Becoming a homeowner in your 20s or 30s may be challenging, however, it’s possible by following these steps:
- Build a strong credit score
- Save enough to afford at least a 20% down payment on the home of your choice
- Apply for a mortgage pre-approval
- Based on your mortgage amount, look for properties that have long-term growth potential
- Accept a mortgage with favorable terms
When looked at from a long-term perspective, undertaking a 25-year mortgage in your 20s or 30s translates to you repaying your debt well before you retire. As a result, you’ll be the owner of a property whose value has appreciated over the years and can be sold at a hefty profit if needed.
Planning for Your Parents
It’s sad to think about but another thing we have to consider as we get older is what to do if and when our parents or loved ones reach a point when they can no longer take care of themselves. Hopefully, that’s a long way away, but it’s always better to plan early. If your parents aren’t able to care for themselves anymore, will you invite them to live with you, or will you look into a care facility?
If you discuss it and choose the latter option, the process can seem pretty overwhelming, but remember to take it one step at a time. For starters, check the ratings of care facilities – hopefully, one that’s close enough for you to visit – and remember to ask questions. Schedule a tour as well, so that you can see what they offer firsthand.
Regardless of what the future brings, the key to achieving your retirement plans is to start early, have a set plan, and be consistent in investing your money in a variety of financial instruments.
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