It’s never too early, or too late, for that matter, to start thinking about and planning for your retirement. As a young adult, we earn income to “get started” in our lives. We use our salaries to pay college loans and buy our first home. As we move into our 30s and 40s, we think about the next step in our lives, buying a bigger house, and taking that family vacation.
If we wait until we are in our late 40s to 50s to think about how to maintain our current lifestyle in retirement, for many of us, it’s simply too late. There may not be enough time to earn and save what we need. The earlier we begin to dream about retirement and think about the possibilities of what that time in our lives might look like, the bigger the opportunity we will have to create the future instead of reacting to it.
So, how do we do this?
- Think About Your Retirement Goals: Make a list of things you want to do in retirement. Do you have a bucket list? If not, make one. Do you want to travel? Are you dreaming of golfing five out of seven days a week? What about leading a volunteer organization or contributing to your community? Having a retirement goal is a powerful factor in helping you stick to decisions today that will keep you focused on your result.
- Create a Monthly Budget: Create a budget and live within your means now so that you can save for retirement. Start by calculating your monthly income. Be sure to include all sources of income. In this step, you should omit any “non-guaranteed” income, like bonuses or overtime. Next, you need to determine your monthly expenses. Start by gathering all your financial statements for the last 6-12 months, and then add in known future expenses such as home and auto maintenance, along with gifts and vacations. Your goal in this process is to never allow your total expenses to meet or exceed your total income.
- Control Your Money: If you don’t, it will control you. Allocate every penny of every paycheck within your planned monthly budget. Pay yourself first; the government takes your taxes before you receive your paycheck, so why shouldn’t you do the same? Most of us make the mistake of paying our bills first and then saving whatever is left. I encourage you to pay into the retirement plan you have for yourself first and then manage your lifestyle and budget to align with what is left. If needed, reduce your expenses. This way, when you retire, you have no debt to pay off with money you’ve saved to live off of after you stop working. As you begin to earn more, increase your savings and investments allocation first, and then make that large purchase.
- Estimate the Future Value of Your Current Investments: If you have been saving as part of a 401k or 403b through your employer, make sure you know how those dollars are invested and understand how that money will grow over time. Research your investment plan, understand your risk tolerance and, if needed, reallocate your money accordingly. Be sure to make the decision to invest as much as your employer will match, seek advice from someone who specializes in retirement planning, and be financially committed to your retirement as soon as you begin earning money. Saving over time is much easier than trying to save it all as you are approaching retirement.
- Decide Now: You have your bucket list in hand, you’ve created your budget, you’ve estimated how the money that you’ve saved will grow over time, and you know what you have to earn and save to live your dream retirement. Now is the time to commit to your plan. There will absolutely be times in life where you will want to dip into that money for an amazing vacation or a bigger house. Decide now that you do not want to work past retirement age and plan accordingly. Sadly, many of our parents either never planned for their future or lost the future they planned for in the market decline. As a result, they may be, or have been, forced to earn an income way beyond retirement age.
Don’t wait until retirement to learn that the nest egg you’ve created will be spent before you are. The reality is, we can save now for the retirement of our dreams! Not only are there safe options in the market place to earn interest on your pot of gold, but there are also products available to protect your principal and create the ability for you to receive a monthly income, just like when you were working. These products will be part of the portfolio that helps you receive your ideal “retirement monthly income number.”
You may think, “There’s so much to know about investments and retirement products, it’s too overwhelming to figure it out on my own.” This is why you want to seek the advice of a financial professional who specializes in retirement planning. They can review your budget and help you determine where to save and invest. This is a person you can build a strong relationship with, whose goal is to guide you and maintain your investments for you throughout your lifetime.