Planning for your golden years in retirement should start as early as possible. Ok so maybe you don’t need to be thinking about stashing away the money you earned selling lemonade as a youngster. However by the time you’re in your 20’s you should be planning for your retirement. Remember the longer you have to save the easier it will be to hit your goals of having enough money to retire on comfortably.
Another reason why you need to start planning much earlier than your parents is simply because the odds are you will live much longer than they did. Typically it’s estimated that you will live anywhere from 30 to 40 years in retirement. Now that’s an incredibly long time to survive only on your retirement account and so you should make sure you are doing everything possible as soon as possible to meet the needs of those 30 to 40 years.
So let’s take a look at a few things you should be doing throughout your working life to make sure you hit your retirement funding goals.
During your 20’s you should make sure to take full stock of all your current debts. You should attempt to live as debt free a life as its humanly possible. However, we all know this will not always be as simple as that. You will more than likely incur debts, however, during these years you must focus on eliminating as much debt as possible to be financially successful.
So the goal should be to remove all credit card debt. Try not to squander more money than is needed on automobiles. If you have student loans make a goal to pay them down as rapidly as you can even if this means you might not have as much fun as your counterparts with no goals.
One of the best things you can do at this early age is to start funding a company-sponsored savings account like an IRA or a 401k plan. If your company offers matching then try and take advantage of this as much as possible. At this early stage, you might not be able to stash away as much as you like but even 1% of your paycheck is a good start especially if you’re focusing on eliminating all debts during your 20’s.
Now one thing to consider here is that you might need far more flexibility than say a typical 401k plan allows so if you need to opt for a more flexible savings vehicle during these years then do so.
During your 30’s you should now switch your goals to ramping up your savings both in the form of a 401k plan or IRA and in more liquid accounts like a savings account at your bank. Defining financial success is a personal matter, but basically, the idea is that at this stage you should hopefully not be burdened with excessive credit card debts and instead be faced with only a mortgage and your typical expense to run a household including having kids.
So it’s vital then that once all your household expenses are met that every bit of your disposable income needs to be funneled into some sort of retirement vehicle. Stashing away say 10% of your gross income is an excellent place to start during your 30’s. EKG Technicians, for example, make an income on average that allows for this kind of savings.
If you indeed are taking advantage of your company sponsored 401k, please make sure you’re taking a hands-on approach with how your funds are allocated. Don’t simply rely on the default portfolio allocation upon joining the plan. This is not the time to get lazy. Make sure your funds are being invested in-tune with your risk level and future goals for retirement.
Now as you enter your 40’s things should be getting a bit easier assuming you really have been working on your retirement and financial plans throughout the former 2 decades. At this stage, you hopefully should only be focusing on paying off your mortgage (or maybe refinancing it) and preparing to fund your children’s upcoming educational needs if that applies. However, now is not the time to slack off. During these years you now should be focusing on maxing out your company 401k plan along with any other savings account you might have outside your company if applicable.
During your 50’s you will now need to switch gears slightly. At this stage of the game, you should be finalizing your plans as you approach your retirement date. You will need to be focused here not to drop the ball. This is the stage at which you will have to be very conservative with how your 401k plans and other investment vehicles are allocated.
During the former decades you probably had taken a bit more risk in the portfolio but now it’s time to redraw those lines of risk. Asset preservation is now the name of the game. Also now is the time to be thinking out the box as to where to spend your golden years. See also this post on Jamcracker’s business success.
There are several places outside the US where the exchange rate for your dollars means you can get far more value for every dollar spent compared to the US. It might make sense to explore a few countries outside the US and see if any offers the kind of lifestyle you would enjoy while cutting down immensely on your living expenses.
If your mortgage has not been paid off you might wish to consider selling your home and purchasing a smaller place for you and your spouse if applicable. Basically, take a serious look at your expenses and start cutting back on anything not really needed here and obviously, your housing cost is the biggest expense of all here.
Also, make sure your medical needs are taken care of also. This should have been a part of your plan during your 50th decade. As you obviously are facing the real possibility of living into your 80’s or 90’s then medical expense will become a major expense for you during your progressive retirement years.
This plan might not be as simple as laid out but obviously, it’s a plan you will need to modify and mold to fit your own circumstances. The point is even if you only can achieve 30% of this that will be better than having no real retirement plan at all.