There are four phases of retirement (pre, early, middle, and late) and planning for each of them is the key to maintaining a comfortable quality of life. There’s no better time to start planning than right this very moment, regardless of age or where you are in your career path. Planning for each step starts with assessing your income and expenses for each phase. Just as important is perfecting a budget, long before you’re close to retirement.
Start saving early.
Financial experts advise us to start saving and investing as early as possible. The recommendation is to save 10%-15% of your yearly pre-tax income. The later in life you begin your saving process, the more you’ll need to save in order to reach a comfortable amount. If your employer offers a 401K, use it! Employers typically offer an employer match on your contributions to this plan. If they offer a 3% match, make sure you are contributing 3% to your plan. Otherwise, you’ll leave free money on the table.
If your employer doesn’t offer a 401K or you’re self employed, you have the options of traditional IRA and Roth IRA through your bank or credit union. Both of these have their own stipulations and guidelines. If you feel one of these may work for you, talk to your bank or credit union. They will be happy to discuss the options with you and help you figure out which one best fits your specific situation.
IRAs and 401Ks tend to have a better dividend than a basic savings account at your bank, so these are recommended first. However, if you really can’t participate in one, setting up a monthly contribution to your savings account is a good start.
You can set up auto contribution $200 a month. And let the compound interest works itself for you. You can choose some index fund.
Investing in stocks is another way to not only learn, but also get some extra cash for your retirement. Depending on who you ask, some will say you need to be completely debt-free before you invest. However, debt takes some people a decade or more to pay off and the best way to invest is long-term. I’d rather ensure at least some of my money is being saved and invested in the meantime!
You can also invest on platforms like fidility, which is a more conservative way of investing but it’s a solid option for planning for retirement.
Set up your budget.
Make a budget. This is important because you can look in one spot to see where your money is coming in and where it is going out. Having the numbers in black and white can help you see where changes can be made, if you’re falling short every month. It can give you a good view at where you can save money, what area your budget is the strongest, and where to cut expenses.
Your budget should have income and all expenses included in it. Expenses from housing costs to the gas in your car or amount spent on entertainment should be included. Income is anything consistent and that you can depend on. If you got an extra $50 for your birthday, it’s better not to rely on that money being there the other 11 months of the year. The FTC has a simple, free budget worksheet that you can edit in Acrobat or print out for a hard copy.
Cut expenses.
Just about everyone can find unnecessary expenses in their budget. This is where you review and find where you are able to cut expenses down - or cut them out completely. If you’re spending a lot out on coffee or fast food, try cheaper alternatives and less frequent visits.
Are you paying for the biggest cable package available while only watching a few channels? Cut it back to what you need. Or, look at the streaming subscriptions that may offer those channels you want at a lower cost.
Perhaps you have a full coverage insurance policy on your vehicles with a very low deductible and you can raise the deductible on it to save some money, without affecting the policy as a whole. For instance, raising my deductible from $250 to $500 saved me $150 every 6 months on my auto insurance policy.
Review each expense and adjust them as you can to decrease the money that is leaving your bank account each month.
Envision your retirement.
What do you see yourself doing in retirement? Do you want to travel? Are you planning on taking on a part time job?
What you envision for your retirement is just as important to your budgeting and planning as saving and cutting expenses. This gives you an idea of what you will need in order to be financially secure in retirement.
If you’re wanting to travel, keep that in mind when planning for your future. It might be helpful to make a vision board and keep it somewhere you can see often. It makes it much less painful to cut expenses when you have a goal in mind. This may even encourage you to downsize your current home or vehicle(s), to be able to retire and travel sooner!
Eliminate debt.
Pay off those credit cards, vehicle loans, your mortgage, etc. as soon as you can. When you’re able to, take 20% of your monthly funds and put them towards paying off your financed items, then you can take that money and save it.
Paying interest on loans means you are paying the mortgage company, credit card company, or bank, a fee for that lended credit. This is money you are losing every month, with no long term benefit to your financial situation.
If it’s feasible after drilling down your budget, make double payments on anything you have financed - even your mortgage! If not, start with focusing on the lowest balance and pay it off as fast as you can. Make a list of all credit cards, mortgage and auto loans; anything with balances and interest rates should be accounted for. Then, start checking them off and working your way down the list.
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