As soon as a person enters the workforce, they should start thinking of the endgame and ask, “How much should I be saving for retirement?” Why? Because it makes sense and being prepared is never a bad thing. The amount of disposable income you have in those early days may be limited and you may have other more pressing objectives in mind, i.e. college loans, buying a house, etc. But suffice it to say, retirement savings should also be high on that priority list, and there are many ways to save for retirement. The amount of retirement savings budgeted will definitely change over time, but by starting early, you will be ahead of the game and potentially setting yourself up for early retirement.
So now you’re probably asking questions like:
- How much should I save?
- How should I invest my money?
- Should I seek out an advisor?
Let’s take a look at each of these questions. In the process, we’ll discover a host of tips for retirement planning.
HOW MUCH SHOULD I SAVE FOR RETIREMENT?
This may be a difficult question, but the answer is simple – ENOUGH! In reality, it’s not really that hard to figure, the difficulty sets in when you have to save! The younger you are when you begin to save, the easier retirement savings will be. By starting with a small amount early, you will get yourself primed for when you have more disposable income to work with.
One good rule of thumb for answering this question would be to listen to the experts. There are many well respected investment gurus out there today.
- Dave Ramsey is one of my favorites. He focuses on being debt free, the sooner the better, and to pay cash for everything. If you can’t pay cash, you probably can’t afford what you want to buy. Ramsey recommends investing 15 percent out of every paycheck into a Roth IRA and pre-tax retirement accounts.
- Suze Orman is another great financial mentor. She would say that the amount you need will differ from what someone else needs. She offers up a formula will help you find that magic number. So calculate your monthly living expenses, then multiply that amount by 12 to find how much you need per year. If your yearly expenses are $25,000, figure out what you need to save and invest to generate $25,000 in annual interest, leaving the principal untouched. e that number as your basis for what to save.
- Ben Stein, a respected economist, suggests counseling with a financial advisor. Be responsible and take responsibility sooner rather than later. Whether you have pension, Social Security or a savings, account, Stein suggests most people will need to have saved 80% of their annual retirement income.
You don’t have to be a financial wizard to save enough for retirement. You just need a plan, and the commitment to put it into action.
HOW SHOULD I INVEST MY MONEY FOR RETIREMENT?
- Think like an investor. Remember that investing is a long-term activity, and you should not exhaust yourself with activities like stock picking, frequent trading or trying to outguess the market. Continue to fund your portfolio year after year. Watch for trends, but over the long run, performance will take care of itself. Don’t knee jerk react to market fluctuations. The wise investor doesn’t abandon a good long-term strategy just because of a disappointing short-term performance.
- Spend less, save more. To be well prepared for your retirement, you must live within your means, buy only what you can afford, and be intentional in the amount you save each month. Don’t count on the stock market or winning the lottery.
- Fund a 401(k). Whether it is an employer provided benefit, or a retirement vehicle you start on your own, this is a great option. Find out what the maximum contribution for each year is, and then make it happen. Your goal should be to save 10%-20% of your income. If you don’t take advantage of the employer match, you’re leaving money on the table and walking away from free money.
- Develop and do not deviate from a prudent financial plan. Take time to sit down and make a plan, and be careful that your goals are attainable. There is nothing worse that having a plan in place that only puts a burden on the family because it has stretched beyond reality. Stick with this plan during good and bad years. You might need to find someone in the financial planning business to give you direction here. No one can predict the future financially, but honest brokers will help give you the advice you’ll need to understand the process.
- Avoid worrying about market predictions. While they may be attention grabbing and sometimes worrisome, forecasts are not always accurate. Think of the weather! The only thing that will move markets away from current prices is unexpected news — which is unpredictable. I have heard it said, treat market predictions like Superman treated kryptonite. Keep in mind that the financial media has no filter to discern between truth and opinion.
- Avoid short term changes to portfolio. Stock prices are more volatile in the short term than underlying economic conditions warrant. If you tend to look at prices on a daily basis, you will see many fluctuations that take care of themselves in the long term. Don’t make a rash move in response to media headlines. Its been said that if you must follow the market, check it on Fridays.
- Diversify your portfolio. You’ve probably heard the old tale, “don’t put all of your eggs in one basket”, and this can be said for investments, too. By diversifying your portfolio you are minimizing the risk.
- Determine what level of risk you are comfortable with. If the volatility of your portfolio exceeds what you are personally comfortable with, you’ll likely make some unwise choices due to emotion, when volatility spikes, and it will. Make sure you are set to meet your financial goals, however, and do not go too conservative. If you have waited until later in life to begin your investing, be careful not to overweighting your portfolio’s stock allocation to make up for lost time. You may be very disappointed. Be diligent in your planning!
SHOULD I CONSULT A FINANCIAL ADVISOR?
The answer to this question is almost always, “YES!” People who work with financial advisors are more likely to be on track for retirement. An advisor will help you stay on track, or even get ahead of the retirement track.
If you’re asking ‘Where should I invest my retirement money?’ that is a question they can answer for you. An advisor will give you insight to what level of investing will get you to the place where you can retire. Financial advisors are able to look at the big picture, have good working knowledge of the investment products available, how they work and how they will benefit you in the short and long term.
There is a peace of mind as well when you are working with a professional. The mystery of financial matters is a bit less daunting when you have someone working with you and advising you.
Finding a competent financial advisor that you are comfortable with is a positive step. Develop a plan together which fits with your goals; then implement that plan, and you’ll be moving toward a sound financial future.
Being able to retire is something we are all working toward. Some achieve financial independence at a young age, and some are still struggling way into their 70s and 80s. Beginning to plan at a young age will help assure the former rather than latter.
- If you are a young person reading this – CONGRATULATIONS! You have the opportunity to be ahead of the game! Spread the news with your friends and begin planning for your “good years” now.
- If you are a bit older, perhaps 50 or above, get with a financial advisor TODAY! It’s not too late, but you have some catching up to do and there are many traps you can fall into if you are not careful. You deserve that happy ending, too!
Whatever your age, have a retirement money plan and look for opportunities to add to your nest egg or help fund your retirement. Direct sales opportunities and other income building strategies are all around us. For example, check out How to Make Money Online. Happy retirement funding!