It can be hard to think about retirement, especially if you're still in the early stages of your career. But the sooner you start to save, the better prepared you will be. Like most financial decisions, planning for retirement involves identifying what you want to achieve, taking stock of your assets, and thinking ahead.
If you're unsure how to start saving for retirement, our guide is here to get you going in the right direction. Here are our seven steps for retirement success.
It can be hard to think about getting older, but you need to consider when you will be able to retire. Consider how long you will physically be able to work, as well as other practicalities such as the needs of your spouse, children, or other family members. You may also consider personal goals you hope to achieve once you stop working.
The most important consideration about when you will retire, however, is when you will have saved enough money to support yourself in your post-retirement years. This figure is likely to be more than you think.
2. DECIDE HOW MUCH YOU WANT TO LIVE ON IN RETIREMENT
A key part of figuring out when you will be able to retire is determining how much money you want to live on in retirement. While inflation can be hard to predict, you can consider the standard of living you would like to enjoy after retirement, and the monthly income you will need to do so.
Compare these figures to how much of your annual salary you are currently able to save or contribute towards a retirement fund.
Now you know how much money you need to live on during retirement, it's time to take stock of your earnings and assets that can fund this post-retirement income. This may include:
Be sure to consider all your existing retirement assets. Many people overlook smaller 401(k) accounts started by previous employers. This should give you a potential lump sum you already have available for your retirement.
At the same time, make sure you're realistic about the extent of your assets, and the likely performance of your investments in the coming years. It can be easy to be over-optimistic about unpredictable things like:
Next, look at other major expenses you will need to meet before you retire. These are expenses on top of your month-to-month or recurring annual costs, such as:
While these expenses can be hard to predict, it's important to factor them into your financial plan because they will compete with your retirement savings for any excess cash.
Once you have a handle on your assets and liabilities, it’s time to integrate these figures into your monthly budget. If you don't yet have one, you can easily create a budget and use it to help you stick to your financial plan.
Finding space for retirement savings in your budget can be painful. You might have to make hard choices about discretionary spending on things like clothing or leisure activities. You might have to balance your needs with other cherished goals, such as assisting your children with college tuition costs.
The key to successful saving for retirement is to make sacrifices now to take care of your future needs. But it can be difficult to adjust your current needs and wants to make way for something you can't imagine in the distant future.
With a clear idea of your current nest egg and a plan in place to generate monthly savings toward your retirement goal, it's time to think about other ways to invest your money. This is a good time to consider:
Retirement planning takes time and effort but it's a valuable investment in your future and the financial security of your family. Decisions can also get complicated, especially when trying to take into account the benefits you may receive from Social Security or Medicare.
You may want to consider talking to a certified financial planner or retirement specialist about how to start saving for retirement in a way that works for you and your financial situation.
If you're still feeling overwhelmed or confused, you can relax knowing there are friendly experts just waiting to help get you started on the right track. Planning for your retirement is a small price to pay for your peace of mind.
At Foothill Credit Union, we offer our members a range of retirement accounts that can help secure a great future for you and your family.
Click to learn more about our retirement accounts: Retirement Accounts