Even if you are not retiring in the near future, there’s no harm in creating a retirement a plan. Financial planners typically recommend that people start thinking about it as soon as humanly possible. Why? Because of the magic of compound interest. That’s why. The earlier you start, the more money you’ll have because of the extra time that your nest egg has had to grow.
Of course, this is easier said than done. When I was in my 20’s, retirement planning was the furthest thing from my mind. I was too busy making plans for the immediate future and not thinking about how things would be 20, 30, or 40 years from now. However, now I am older and wiser. I now realize that the future is here much sooner than we think. With that being said, we had better start planning, right?
The sooner you start saving for retirement, the better off you’ll be once you leave the workforce. But, where do you start?
1. How much will you need?
This is the hardest question to answer. It is difficult to predict how much income you will need in the next 30 or 40 years. However, several tools are available to help you estimate your retirement needs and save accordingly. A retirement savings calculator is one of the best tools to jump start your retirement savings plan. These calculators take into consideration how much you have and how much you will save, in addition to factoring in inflation. With the help of a calculator, you can get a rough estimate of what it will take to maintain your standard of living.
2. Diversify your savings.
You shouldn’t rely on a single retirement savings plan. There are several ways to invest your money, and by diversifying your plans, you can maximize your retirement income.
A regular savings account and money market account are excellent ways to keep some of your cash in a liquid state. However, these accounts generally do not offer the highest interest rates. Make sure you explore any and all other savings options that are available to you. For example, if your employer offers 401(k) accounts, enroll in a plan (if eligible) and begin contributing money toward your retirement as soon as you can sign up. You can also look into self-funded retirement accounts, such as IRAs. And if you’re feeling brave, consider riskier investments, such as stocks and bonds.
3. Pay off debt.
Debt is always a huge pain in the ass. This is especially true when you’re getting close to retirement. As a matter of fact, depending on how much you owe, you may have to delay retirement to continue paying off your stuff.
Do you have a mortgage? If so, look into different ways to pay off your home loan before retiring. I personally advocate paying off your mortgage as soon as humanly possible. This is, of course, after you’re saving for retirement and other goals and have a fully funded emergency fund. I honestly can’t believe that anyone would want to pay on their home for thirty freakin’ years!
Of course, debt repayment doesn’t only apply to your mortgage loan. It applies to everything else that you’re making payments on. In short, the sooner you pay everything off, the better off you’ll be.
The retirement years can sneak up quickly, and if you don’t plan early, you may work longer than expected. Since I don’t want to be a greeter at Walmart in my 70’s, I’ve started taking retirement planning seriously.
What about you? Are you saving for retirement?