January 23, 2024
What we'll cover:
Saving for retirement. We all know we should make it a priority and that the earlier we start the better.
The challenge is that saving for the future can feel so distant – life gets in the way, so saving takes a back seat. But no matter your age, life stage, or the many things you’re juggling, saving for your future should be a top priority.
When it comes to saving for retirement, there may be times where you feel like you’re behind or aren’t doing enough. That’s okay. The main thing is to do what you can given your circumstances. A lot of the fundamentals and tips covered in this article are simple and more importantly, achievable.
One quick note: Keep in mind that when it comes to your money and saving for retirement, it’s always a good idea to consult a financial advisor if you have questions.
This is probably the hardest and most daunting part because there are so many unknowns. You don’t know how long you’ll live. You don’t necessarily know when you’ll retire – even if you have a target age, it may come sooner or later than you think.
You also don’t know what sort of healthcare costs you or your loved ones might incur. Your location and lifestyle will impact this number. Point is: You just don’t know, and not knowing can be scary.
So what do you do? There are several retirement planning calculators out there that will try and factor in some of the variables (retirement location, lifestyle, wage inflation, etc.). There’s also a basic rule of thumb that you’ll need 80% – 100% of your pre-retirement income each year once you retire. In other words, once you retire, you’ll need to have access to 80% - 100% of what you made immediately prior to retiring.
Going with this rule, let’s say you retire at 65 with a $150,000 annual income. For this example, let’s use 90% as the percentage of your income you’ll need in retirement. Take that $150,000, multiply it by 0.90, and $135,000 is the annual income you’ll need in retirement. That’s well over $3 million if you live to 90.
Do some research, crunch your own numbers and figure out a ballpark goal. Even a range is fine, but having some real, actual numbers is a critical first step. Whatever you do, don’t just wing it and hope that you’re saving enough. You may also want to think about bringing in a financial advisor to work with you on your retirement planning.
Start by establishing good habits and making retirement a priority. How you manage your finances now will shape much of how you handle finances in your future, and you want to build off a solid foundation. Time is on your side, and the more you save early on, the more compound interest will work in your favor.
Maybe this section is for your kids (or grandkids), and if so, help them by reinforcing good habits.
By this point in your life, you’re likely earning more than you were in your 20s. It’s also the point in your life where your obligations – financial and otherwise – can start to expand.
It’s easy to spend a lot of money trying to maintain a certain lifestyle, but don’t let the allure of keeping up with the Joneses (or what you see on Instagram) tempt you from saving for your future. Make sure saving for retirement remains a top priority.
If you’re behind (or just getting started): First, don’t panic. Even if you start now, compound interest can still work in your favor and help you reach your retirement goals. Make sure you understand the fundamentals covered above and then set aside a greater percentage of your salary for saving if you can.
Your responsibilities in your 20s and 30s probably seem like a cakewalk once you hit 40. For some in this age group, you might find yourself in the stressful position of having to take care of both your own children and your aging parents. And when you’re taking care of everyone else, it’s easy to neglect taking care of yourself – but try your best not to.
If you’ve built good habits, keep going!
If you’re behind (or just getting started): Know that you’re not alone. If cutting your budget only does so much, think about ways you could increase your earnings – ask for a raise, look for a higher paying job or consider another income stream (rental properties, side gigs, etc.).
Retirement probably doesn’t feel so distant now that you’re in the homestretch. And while you might still have a ton of priorities you’re juggling, keep focusing on your future. Your perspective on it will gradually start shifting from building your savings to accessing your savings. Of course your money should continue to work for you, but as your retirement age inches closer, you’ll need to figure out how to live off your nest egg.
If you’re behind (or just getting started): Take a deep breath. Be realistic about your retirement goals and when you plan on retiring. It’s possible that you may need to work longer to meet those goals. The most important thing you need to do is start saving more if you can.
Remember: No matter your age, start by calculating a general estimate of your retirement needs. Then save accordingly, evolving your strategy as you age.
Retirement can be nearly a third of your life, and you probably want to enjoy it. If you spend as much time financially preparing for retirement as you do dreaming about what you’ll do with it – be it traveling the world or playing 18 holes a day – you’ll head into your golden years with confidence and a (hopefully) healthy nest egg.
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