Are you planning for retirement? Even if you don’t ever plan to retire, you can still pick up some tips for saving your hard earned dollars and making the most of them. For the rest of us, we know the day will come when we hope to retire. Whether that day is just around the corner or decades off, it’s never too late or too soon to begin planning for retirement.
Your timetable for retirement has a big impact on the strategies that will help you retire with the funds you need to live the lifestyle you envision. Each stage of your work life presents challenges to your ability to save. Each stage has its excuses to put your funds elsewhere. If you’re like most people, dreaming of retirement is more fun than actually planning for retirement and setting aside the funds you will need.
If that sounds like you, we have some tips to help you turn retirement dreams into a retirement nest egg.
Early Bird Savers
No more excuses! Many college students are chronically short on funds. Tuition is sky high, textbooks are expensive—even used books or digital versions. Who doesn’t want to join their friends for spring break? Or attend a concert?
Even a shoestring budget can provide savings if you’re committed to setting a little bit aside. As little as $25 a month compounded over 40 years yields a bundle. Don’t discount the power of small amounts.
That’s all it takes if you start planning for retirement while you’re still in college. Whatever form of savings you choose, the longer your money has to earn interest before drawing from it, the more you have available when you do retire.
It’s almost embarrassing how easy it is to build a nest egg if you start early. Those few dollars you set aside when you’re twenty pay off in a big way when you’re in your sixties. Early bird planning for retirement savings is perfect for the lazy saver!
If you’d like your money to work harder than you do, here are a few tips to help you build the nest egg you want.
- Choose a savings account that compounds interest. Simple interest only accrues on your principal. Compound interest accrues on your principal plus interest. Your account will grow more quickly.
- If you’re someone who will be tempted to “borrow” from your retirement savings, set up accounts that will limit your ability to withdraw funds. That’s part of the beauty of Individual Retirement Accounts. Penalties on early withdrawal will make you think twice about using your money for anything other than your intended purpose. IRAs are also tax-deferred.
- If your employer offers a 401k, take advantage of this retirement savings option. Your employer typically chips in with a percentage based on your contribution. 401Ks also have tax advantages. Discuss this retirement plan with your HR representative.
- Explore the world of mutual funds. Also, does your employer offer stock options? Over time, most investments offer a good return, although you might want to convert high-risk investments to a safer financial instrument as you get closer to retirement.
- Social Security shouldn’t be the only egg in your basket. The amount you receive from Social Security is meant to be a safety net and likely won’t provide the funds you need to truly “enjoy” retirement. Furthermore, cuts to benefits are periodically threatened. Even when the federal government doesn’t cut programs, the threat can cause anxiety.
The options are many for college graduates in their first jobs. Seek advice. There’s a lot to learn but it’s worth your effort to become financially savvy. Take control of your financial future.
Late Bloomer Savers
If your target for retiring is fast approaching and you’re retirement funds aren’t what you had hoped, don’t panic! Face up to your situation, knowing that you’re not alone, then take a deep breath and make a plan to do better in the time you have left. Panicking could lead you to take inappropriate risks that could leave you worse off than you are now.
We suspect that your funds might not be as healthy as you had hoped because you used potential retirement funds for other priorities. You were told that good parents save for their children’s college. You took vacations with the kids because they grow up so fast.
Of course you want happy family memories! However, if you put off planning for retirement, you could end up living with your children. If that’s not your ideal retirement (and even though they love you, it’s probably not what your kids have in mind), then it’s time to rethink your priorities. When it comes to retirement savings, you need to put yourself first. That isn’t selfish; that’s smart.
So here are some tips to put planning for retirement as your top priority.
- Pay off debt. As long as you’re dealing with debt, you aren’t likely saving. Pay off that credit card debt and turn those former debt payments into your retirement savings fund.
- Review your insurance. Inadequate coverage can lead to bankruptcy. Uncovered medical bills can wipe out years of savings. Planning for retirement should involve planning for life’s more immediate emergencies and disasters.
- Minimize or avoid high-risk strategies. High-risk investments with the promise of high returns are a young person’s game. If that investment goes bad, young adults have time to rebuild from the loss. The closer to retirement age you are, the less risk you should take.
- Maximize your 401k. Sock away the highest amount you’re allowed if possible. Also, select a portfolio that balances growth potential with risk.
- Contribute to a Roth IRA. It grows tax-free, and it’s tax-free when you finally withdraw funds.
These are only a handful of ideas. Your situation is unique, so seek professional advice to help you assess your resources. A financial advisor can help you sort through the myriad options and find the best combination for you.
It’s Always the Right Time for United Financial to Help
Whether you’re an early bird or late bloomer, there are questions you need to answer while planning for retirement.
Let’s face it; it’s hard to know when you’ve reached your retirement financial goal if you don’t know how much you’re shooting for. It helps to run through the variables to figure out how much you will need.
Here are some basic questions you should answer when you begin planning for retirement or reassess your plan:
- How much do you need to sustain your preferred lifestyle? Will you travel? Will you retire in your current home or use your home to finance your move to a retirement community? Do you have expensive hobbies?
- How much time do you have to build your nest egg? At what age do you plan to retire? How many years does that give you to save?
- What’s your life expectancy? It can be difficult to think about how many years you likely have left, but it helps you plan realistically. You don’t want to run short of funds in your golden years.
When you have an idea how much you’ll need monthly, you can use our guide to estimating your retirement income needs to help you determine how much you’ll need to save. If the prospect of crunching all those numbers is daunting, schedule an appointment with a United Financial financial advisor. We can walk through the process of planning for retirement with you.
From Pre- to Post-retirement
Finally, don’t forget that planning for retirement is a first step. At some point you actually retire! You can also consult with us to find the best options for drawing on your retirement nest egg. Contact us today!
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