Retirement may be a long ways off but it is a goal for most of us. This may be one of the most important financial goals you have to plan for and the sooner you start the better.
Have you ever thought about just how much money you will need when you retire to support yourself financially for the rest of your life? If you just did basic math, you would probably come up with a pretty big number. Now if you factor in the increase in the cost of living over time, better known as inflation, that number can be overwhelming.
Hopefully you are not planning to retire tomorrow with no savings so you still have time to plan. How much money you will need to successfully fund retirement will depend on the lifestyle you wish to support throughout retirement. Ideally, you should plan to maintain or improve your current lifestyle during retirement. You should start by envisioning what a satisfying retirement will look like for you.
Some things to consider include; will you own your home outright? How will you cover medical expenses? How often will you purchase a new vehicle? How often do you plan to travel? Will you want to provide financial support to family? Do you want to leave assets to surviving family or charity? In addition, you need to think about the longevity in your family and how long you may need to fund retirement. These types of questions will help you to project how much savings you will need at the time of retirement to support your retirement goals. Once you determine a future dollar amount, you can come up with a systematic savings plan with that goal in mind.
The average person will do well if they save at least 10% of their gross annual income starting in their twenties. The longer you delay savings, the more you will have to save. For example, if you do not begin to save for retirement until your thirties, 15% of your annual gross income may be required to adequately fund retirement. Unfortunately, you will never be able to catch up to what you could have accumulated if you were to start saving earlier in life. With that being said, you can’t afford to delay saving for retirement any longer.
You will need to implement a strategy to meet your retirement goal. Some things to consider when developing a plan are; How much time do you have before retirement? How much will you need to have saved by the time you retire? How much can you afford to put aside for retirement? What is the best savings vehicle to use to fund retirement? You may have other sources of income at retirement such as Social Security or a Pension. You will need to factor that in as well.
Saving for retirement may seem like a goal you can put off until later. We all know that time flies, especially as you get older. You can’t get time back or the magic of compounding so you do not want to be in a position where you are not adequately prepared for what could be the best days of your life. It does not matter how old you are, if you have earned income, start planning for retirement today!
