Retirement savings is an important part of life and can oftentimes seem like a daunting task. But the most crucial aspect is just starting to do it. Whether you have already begun saving for retirement or are just now looking to start, there is no time like the present to keep working towards achieving a desirable lifestyle when the time for retirement comes. Currently, the average age for Americans to retire is 66, according to a recent Gallup poll. Additionally, the average retirement savings is about 106 thousand dollars for people aged 55 to 64, as stated by the United States Government Accountability Office. This may sound like a good amount of money but only amounts to an annuity payout of about 300 dollars per month.
When it comes to deciding how and when to retire there are a few factors that will impact more than how aggressively you are preparing. These include the amount of time before you plan to retire and the amount of income you would like to have upon retirement. However, the most important thing to keep in mind is that you need to have a plan. Be aware of your current situation and how it relates to the one you want to be in will help to ensure that you stay on track to meet the goals that you set out for.
Making a Plan
When making a plan for retirement, it is often times easiest to work backward, to think about where you would like to be and what it will take to get you there. Think about the following things:
- The age at which you would like to retire
- The amount of income you would like to have monthly
- The amount of time you will be living after you retire
Once you have the above figured out you can work backwards in order to figure out the budget that you will need to employ in your current life to ensure that you will have your desired lifestyle for retirement.
Without getting into the weeds of the financial aspects and interest payouts (it is highly recommended that you work with a financial advisor or planner to determine these figures), let's say that you have determined that you would like to retire in 10 years and have 200 thousand dollars. Currently, you have 150 thousand dollars set aside for retirement and need to save an additional 50 thousand dollars in order to meet your goals. While 50 thousand dollars may sound like a large sum of money, when broken down, it ultimately is only about 5 thousand dollars per year. If you are able to buckle down and stick to a tight budget, you should be able to do this in no time. Roughly, 5 thousand dollars per year is is a little over 450 dollars per month to be saved. It is best to think about saving as a way to pay yourself in the future, instead of something that you are withholding from yourself in the present.
Budgeting for this extra type of saving can be tough, but the little things add up. Instead of stopping for a coffee on the way to work, make one at home. Rather than going to lunch and eating out with coworkers, bring in a sandwich. Small life changes can really make a difference in the long run. If you were to stop eating out during the week and brew your own coffee at home, I am sure that alone would save a few hundred dollars per month that can be used to fund your dream life, upon retirement.
Q&A
Q: How do a find a financial advisor or planner?
A: Ask your friends. Often times the people around you have someone they have personally worked with or know someone who has. There is no better review than one of someone close to you. However, it is always important to do your own checks to ensure that the person has your best interest in mind. The most important, number one rule with regard to financial advisors and planners is to make sure that they are a fiduciary, or someone who is legally bound to act in your best interest.
Q: What happens if I cannot stick to my budget?
A: Life happens and things come up, the most important thing is that if one month you are unable to meet your savings goals, that the next month you do everything you can to make up for prior month.
Q: Are there any other resources?
A: Yes, there are plenty of resources online that pertain to retirement and goal setting. However, always make sure to vet your sources to ensure that they are reliable information hubs.
Q: What is the best way to track my budget?
A: If you are primarily using cash, a ledger of transactions may be useful. However, with the prevalence of online banking, most banks and credit card companies offer a tracker that is built into their online platform that make it easy to see where exactly your money is being spent.
