Retirement just kind of happens. Live long enough and you’ll eventually reach a point where you leave your career, change things up, or finish working for a living altogether.
In the old days, employees would work for a company their whole life and expect a retirement package at the end of their career. Nowadays, it’s up to the individual to create a comfortable nest egg for themselves.
Unfortunately, most people put if off as a ‘one day, I’ll get to it’ commitment. But these words are dangerous because they give us an excuse to shelve important decisions that will radically influence our future.
Waiting for ‘one day’ to arrive, doesn’t solve the problem. It actually just makes it worse as every day we wait to put a plan into action, the worse it gets. So here are a few top tips on how to start planning for retirement.
Make an actual plan
Saving for retirement can actually be quite a difficult thing to figure out at first. You’ve got to think about a host of factors, all of which may only affect you in 20 or 30 years time. But that doesn’t mean you shouldn’t plan. If you want to get a handle on what you’re going to need to create a worthwhile next egg, then you’ll need to create a plan.
First, determine what you’ll need to contribute every month to reach your retirement goal. You’ll want a sum of money that can consistently deliver between 70 and 90 percent of your pre-tax, pre-retirement salary. How much you need to contribute to reach that goal will depend on the time between when you start and when you plan on retiring, and how much you earn. So how will you ensure that these contributions are made consistently?
Make a budget and stick to it
You should take a long hard look at your expenses and start budgeting. What are your recurring expenses, non-negotiable financial commitments and savings contributions? A budget will give you a clear picture about where your money is going and will give you insights into which debts can be tackled first. Now that the plan’s in place, be disciplined about it. Change your mindset if you have to and stick to it ruthlessly.
Save, save, save
Saving up for years just to meet 70 to 90 percent of your old salary once you retire can sound like an overwhelming challenge. How are you supposed to save that much and still life your life before retirement? Well, even the largest tree was once a seed. It can be difficult to think about paying now only to benefit later – especially years. That’s where the shift in mentality comes in.
Designate an amount of your pre-tax income and have that taken off of your paycheck before the beginning of the month (just like your taxes). It’s easiest to save money when you don’t have it in your hands since you’re effectively taking the decision about saving out of your control. Assume the outlook that the money you save for retirement doesn’t exist, at least not until the future.
Consolidate your debt
It’s easier to save for retirement if you don’t have debt hanging over you. While it might sound counter-intuitive, look at the advantages of a consolidating your debt. Look at how much you can afford with a personal loans calculator and then throw all of your cash windfall at the consolidated amount. Any pay rise, 13th cheque or bonus can go into this debt to kill it off as fast as possible.
Protect yourself through diversification
Putting all of your eggs into one basket for your retirement plan is a sure way to spoil your retirement. Every financial advisor worth their salt will tell you that the more diverse a portfolio is, the safer it is. A person heavily involved in just one type of investment is far more vulnerable to financial struggles, should their basket crash and burn.
Don’t be afraid to talk to a financial advisor and ask how you can diversify though stocks and bonds. A good rule of thumb is to keep your bond percentage close to your age, adjusting as you get older. So if you’re 30, for example, about 30 percent of your portfolio should be in bonds. By the time you’re 60… you get the general idea. But don’t stop with just stocks and bonds. Look for other ways to spread risks among your investments – property for example.
So you’ve budgeted hard for the last couple of decades. You’ve been disciplined about saving and haven’t touched your next egg, diversified your finances and weathered some economic challenges. Now that you’re at the end of your work life, you’ve got a substantial treasure chest that’s all yours. Don’t blow it all at once.