Depending on how old you are, retirement may seem a long way away. But in reality, there’s no better time than now to prepare and focus on what you’ll need when you decide to stop working. In fact, the earlier you begin retirement planning and saving, the more you can save away and be earning interest on—both things that will help build your bottom line for the future.
The biggest challenge for most people is outliving the nest egg you’ve saved for retirement. Still, only one in three people are actually saving toward retirement, and a recent study conducted showed that almost 81 percent of people don’t know how much money they should be putting toward retirement. In general, Millennials are the best at saving, with 60 percent of the population limiting spending to save more, while Xers and Boomers lag quite a bit behind, at 33 percent and 21 percent, respectively. With a little planning, however, and a lot of discipline, you can achieve all your goals and ensure that your retirement years are spent comfortably.
Take Control of Your Finances to Prepare for Your Retirement in Three Simple Steps
How Much Will You Need?
In order to prevent running out of money at the end of your retirement, determining how much money you will actually need is key. If your family members typically live into their late 90s, then you will need to prepare for that scenario as well. If you retire at the age of 65, that means you will need to be able to financially support yourself (and a spouse if you’re married) for 30 to 35 years. Anything can happen in life, however preparing conservatively can ensure you don’t end up broke in your twilight years.
Many financial planners suggest having enough retirement funds so that you can withdraw or use 4 percent of it each year. Contact a certified financial planner to help plan your retirement. In the meantime, you can use a retirement calculator to set some rough estimates.
What do you already have in place?
As you create your plan, consider what you already have in place. Do you have a 401(k) through your employer? Do they offer a pension plan upon retirement? What will Social Security provide you? Go ahead and note what you have already put in place, along with estimates on what they will yield at your estimated age of retirement. While you’re at it, make sure you are maxing out these offerings as much as you can. Ensure that you are taking full advantage of any employer matches that your company offers, and that where you can, utilize tax deferred options with few fees or upkeep charges. And finally, build up a savings account with three to six months worth of expenses—while it won’t get you far in your retirement, it will prevent an accident or obstacle from cropping up beforehand and derailing your efforts to save.
Create a Plan
Once you know how much you need and what you already have in place, you can identify the gap of financial assets you need to fill. The key is not to underestimate, for having more at retirement is infinitely better than not having enough. As you revisit what you’ll need, be sure you’ve allowed for the following: inflation and cost of living increases, penalties or restrictions and taxes. Doing so will give you a highly accurate picture of your future needs.
Once you’ve done so, start saving! Meeting with a financial planner will help ensure you are diversifying your accounts for the best possible results.