Believe it or not, only 58% of all Americans are actually saving for retirement.
This means that more than 40% of the American population isn’t putting any money away for retirement, have no plans for how they will pay for life after they retire, or simply do not ever expect to be able to stop working – intending to continue working until the day that they leave this earth.
Combine that with the fact that 48% of Americans that are planning for retirement have less than $10,000 saved up already and you are looking at a very, very uncomfortable reality here.
50% of the Baby Boomer generation (retiring in mass numbers) anticipate that Social Security will handle all of their retirement income, with 64% of Americans reporting that they have absolutely no idea how much money they’ll actually need to retire comfortably moving forward.
These are not encouraging statistics.
Thankfully though, you can course correct a little bit and secure the type of comfortable (not lavish) life of retirement you expect and deserve with just a little bit of foresight and strategic retirement planning.
In this quick guide we are going to show you how to realistically retire, how to hit all of your retirement goals, how to move through the different stages of retirement planning, as well as how to invest for your retirement so that you do not arrive advertisement later in life with no plan and no income.
Establishing Your Financial Goals
Just as no road trip starts without an idea of the final destination – and then a plan to get there – it’s impossible to tackle retirement planning without first figuring out what your retirement goals are to begin with.
Some folks are happy investing very little of their active income before retirement so that they can cut back on work, rather than abandon working altogether. These “part-timers” are happy to work a couple of days a week for a decreased regular income knowing that they have retirement money they’ll be able to lean on to cover the gaps.
Other folks are more interested in giving up work altogether, leading a life of leisure. These folks are obviously going to need a little bit more money set aside to cover all of their income needs as they usually won’t have any extra money coming in – at least not on a steady basis.
Regardless of how you want to approach retirement, it’s important that you know exactly how much money you are going to need going forward.
This is the biggest piece of the puzzle when you are getting ready to retire, gives you a concrete goal to shoot for when saving for retirement, and allows you to find a financial advisor that’s going to help you dial in your investment strategies and saving milestones so that you can cover all of your bases.
As a general rule, however, retirement planning should first begin with your very own Emergency Fund that can cover upwards of six months of living expenses from top to bottom – even if you have absolutely no other income coming in.
You’ll want to start by saving up your first $500 in this Emergency Fund, adding to it on a weekly basis (or monthly basis) until you hit that six months of coverage. This gives you a lot of freedom and a lot of flexibility not only later in retirement but also as you work towards retirement. You’ll know that you can be out of work for up to six months (as a result of injury, illness, emergencies, etc.) without taking it on the chin.
The next big piece of the puzzle when it comes to retirement planning in the goal stage of things is to get money into your 401(k) ASAP.
Employer-sponsored retirement plans like 401(k) or 403(b) programs not only give you an easy saving for retirement strategy but also increase the value of your retirement contributions.
As long as you hit the threshold your company has set for matching funds you’ll be able to (literally) double your money even before it hits your retirement account – allowing you to achieve your retirement goals a lot faster than you would have been able to before.
This sets the foundation of your retirement planning with proper goals, a plan of action to get to those goals, and baseline Emergency Funds and retirement plans that are solid, stable, and reliable.
Saving for Retirement
The very next thing you’ll have to tackle as part of your retirement planning process is to figure out not only how to go about saving for retirement but also where and when you’re shifting money into these types of accounts or investment vehicles.
As we just highlighted a moment ago, 401(k) programs give you an unbelievable opportunity – and some pretty cool incentives – to save for retirement that you’ll have an almost impossible time finding anywhere else.
Not only do these retirement programs help you to multiply your retirement income later down the line (so that you can avoid having to adjust lifestyle expectations when you do retire) but they also shield your retirement income from the IRS and allow your nest egg to grow without getting taxed, too.
IRA investment accounts also provide you with a lot of these benefits, regardless of whether or not you choose to take advantage of a traditional IRA program or a Roth IRA. Either way you will be able to contribute up to $6000 to each of your IRA plans every year tax-free – growing your retirement income and protecting your future financial situation along the way.
If you end up maxing out your IRA contributions early it’s a good idea to flood as much of the left over retirement money you have available directly into a 401(k) or other employer matching retirement program. This maximizes the amount of money you have available when does come time to walk away from working and enjoy life as a retired person.
Try to figure out exactly how much money you should be saving towards retirement versus paying off your debt (especially when you are younger) is a bit of a tricky situation. At the same time, financial experts usually advise you to set aside anywhere between 10% and 15% of your pretax income – ideally right from the very first check you ever get.
It’s important to remember that money you contribute to your retirement (and money you invest for the long term) is only one component of your retirement planning. The time that you allow your money to grow is another (arguably more important) piece of the puzzle – and you want to make sure that you give your money as much time as possible to help you when getting ready to retire.
A little bit of back of the napkin math will easily let you save between 10% and 15% of your pretax income. You can even automate the process so that this money is moved from your check directly into retirement accounts so that you never see it, you never feel it, and you never notice that you are planning to realistically retire on autopilot to begin with!
If you are a little bit later to the game when it comes to retirement planning you might want to use any of the online retirement calculators out there to help you figure out exactly how much money you will need annually when you do decide to hang it up and quit working for good.
Work backward from those figures to figure out how much lump sum income you’ll need in your retirement years and then allow those figures to dictate how much money you need to set aside (or how much you need to adjust lifestyle expectations to make your retirement more realistic).
Unless you have an unbelievably skyhigh annual income (and will for years and years to come) the odds of being able to save your way to retirement are slim to none.
The costs of medical care are only going to grow, inflation is going to chisel away at your buying power, and there are a myriad of things that can happen to cut into your savings – especially after you retire and do not have extra money coming into replenish the cash that you are spending.
This is why it is so important to get to the investing stages of retirement planning ASAP.
You don’t necessarily want to be managing money in retirement by pinching pennies and clipping coupons, and when you invest for the long term combined with saving for retirement you won’t have to worry about that, either!
The easiest way to start investing for your retirement is to pump money into the stock market.
As a general rule, the average annual return on stocks (from 1968 to 2017) sat at 10.05% – and that’s if you invested in the S;P 500. That means that a $100 investment 50 years ago would have turned into more than $10,000 today.
Combine that with investments in 10 year treasury bonds, three-month treasury bills, or even gold and you are looking at a fraction of the return on your investment – making the stock market one of the safest bets for your money (as long as you are strategic).
When planning for your retirement and looking to jump into the stock market you don’t necessarily need to find a financial advisor that will help you date trade, help you by options, or get you into commodities.
All of those investment vehicles offer fantastic opportunity for exponential growth in personal wealth – but they also carry a mountain of risk that retirement planning individuals usually aren’t willing to fool around with.
No, instead what you’re going to want to do is fall head over heels in love with index funds, mutual funds, stocks that pay dividends, and other (safer) stock market plays.
You might not be able to cash in on the next big IPO that goes to almost astronomically high prices overnight with this kind of approach. But you won’t have to worry about your entire investment account (and your entire retirement nest egg) getting wiped out when these moves go wrong, either.
Sure, you can fool around with the stock market with money not set aside for your retirement. And sometimes those kinds of strategic moves and up paying pretty big dividends themselves.
But as a general rule you are going to want to park your retirement investments for as long as possible, allowing them to grow and mature over decades while you invested for the long-term and shoot to turn your retirement dream into a concrete reality.
Your Retirement is Your Retirement
One of the most important things to realize as early as humanly possible is that your retirement is your retirement alone, and does not have to look like (or cost as much as) anyone else’s.
Your specific financial situation, your retirement planning, and the investment strategies that you feel comfortable with are all going to contribute significantly to your success in getting ready to retire.
It’s of the utmost importance that you do have a plan, however – not only to hit your ideal retirement age but also to figure out how much you want to spend in retirement, how much active managing money in retirement you want to take care of, and the kind of lifestyle you’ll enjoy so that you can realistically retire comfortably and happily.
As long as you cover all of those bases you won’t have to be like the millions and millions of Americans that are hoping Social Security will cover all of their bases when it comes to retirement income even though they know (deep down) that the odds are pretty good that isn’t going to be how things shake out.
The best time to start retirement planning is the first day that you report for work in your life. The next best day to start retirement planning is today. Hopefully you’ll be able use the inside information above to help you hit the ground running!