Retirement. We spend our whole lives working towards this goal. The very first time a bright, young teenager gets that first paycheck, there’s money from that check that went towards paying for his or her later years (hopefully). It’s safe to say that ultimately, we are all just working to one day be able to retire.
The problem is, most of us don’t really think about retirement until it’s too late. That teenager isn’t thinking about what life will be like 50 years down the road; he or she is just trying to figure out how they can use that check to live.
Even as we enter the workforce, retirement still seems like something that only happens to other people. It isn’t until we have a few decades under our belt that we start to realize that our later years are, indeed, starting to approach faster and faster.
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When that happens, we have to ask ourselves an important, but scary question: are we ready for this
Unfortunately, too many people answer that question with a resounding “No.” The fact is, unless you have taken real steps towards planning your retirement, there’s no guarantee that you’ll be ready for it.
And without a financial cushion, you won’t really be able to relax and enjoy your final years. You might find yourself cutting coupons and pinching pennies to scrape by, or moving in with a son or daughter because you can’t afford to live on your own.
Of course, no one wants that, and the good news is that you don’t have to end up that way. With planning, knowledge, and foresight, you can avoid those pitfalls, and approach your retirement with confidence and peace of mind. Here’s what you need to know:
As with any long-term commitment, the first thing you need to do is set your goals. It’s impossible to know if you’re ready to retire when you haven’t even taken the time to figure out what “ready to retire” even looks like. So, before you do anything, you need to take stock of where you are and where you hope to be in the future.
For instance, do you want a quiet retirement in a small house, surrounded by friends and family? Do you want to spend your golden years traveling all over the world? Are you interested in adventure? Luxury? Do you see yourself growing old behind the wheel of an RV as you drive from state to state? Or heck, maybe it’s a combination of all of these.
These are not just the idle questions of a daydreamer; they are important questions that need to be seriously considered as you begin your journey toward retirement. Because these different goals can come with a very different price tag, it’s important to start with a realistic expectation of just how much you need to set aside in order to retire in the manner you want.
Otherwise, you might find yourself behind the wheel of that RV driving through Iowa while wishing you were flying first class to Europe!
Once you know what sort of retirement you wish to have, then it’s time to begin looking at your options on how to get there. Financial planning can never happen too early.
In fact, the earlier you start, the more chances you’ll have to achieve those goals, because many of these goals are dependent on time. The longer you have to save, the more money you will be able to put aside.
Normally, these sorts of posts would have this step at the end (and who’s to say we won’t do that, anyway?) but in reality, talking to a financial advisor is the first thing you want to do. So, it should go at the top of the list.
The wisdom and advice of a knowledgeable financial advisor can not be overstated. Simply put, they are the best tool in your toolbox for reaching your goals. They can figure out what you need to do now, in order to be ready then – even down to the dollar amount you need to shoot for each month, quarter or year.
We think of making a budget when we tighten the purse strings in times of hardship. Or when there’s a luxury item that we want to save for. But, in reality, we should always be budget-conscious, regardless of our circumstances.
Without a budget, you run the risk of overspending each and every pay period, because you will not have anything concrete to keep you in check. So, any good financial planning involves making a budget. In this case, it’s a budget to keep you saving now, and it’s a budget to help you reach your goals in the future.
When we think of budget planning we can easily assume that all necessities are listed and considered. However, where budgeting really becomes helpful is when you consider the non-essentials. Things like restaurants, games, vacations and luxury items have to be considered.
Having a budget doesn’t mean you can’t enjoy those things now, but it does mean you have to figure out your priorities. How much are you willing to spend, especially if you know that the more you spend on that luxury, the less you have to put away for retirement? It’s okay to buy frivolous things, just make sure they don’t get in the way of your long-term goals.
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If you haven’t yet been introduced to the world of budget apps and programs, then it’s time to get on board. There are literally hundreds of websites, programs, and apps you can use that help you make sense of where your money is going at any given time.
This technology comes able to analyze spending, track your habits, and even make suggestions for the future.
As you work and approach your retirement years, you’re probably thinking a lot more about your 401K and Social Security.
Because many people don’t really understand how Social Security works, they often end up making one of two mistakes: either forgetting to take it into account when they make their plans or assuming that it will cover more than it does.
On average (again, this is very average), a worker pulling in full Social Security benefits can stand to expect around $18,000 a year, or around $1,500 a month. While this almost never comes close to matching what an employee makes during their working years, it can go at least part of the way to helping make sure you stay afloat during a time when income typically takes a hit.
However, unless you plan on living out the remainder of your years in the proverbial van down by the river, $18,000 a year isn’t going to be enough to fund your retirement. This means you need to make sure your other avenues of income are pulling their weight.
One of the fundamental principles of saving money is that you can’t save money if you have to keep spending it. And for most people, spending comes in the form of paying off debts. Whether it’s credit cards, car payments, a mortgage, or medical bills, most people are in debt and looking at years and years of payments.
The problem is, you can’t save for your retirement if you’re busy paying off all of these debts. So, the question is how can you pay off your debt quicker?
If you are dealing with a lot of bills with high-interest rates or monthly minimum payments, one thing you can do is consolidate these bills, either by refinancing your house or using a personal loan. By doing this, you can lower your total monthly payments, allowing you to set more money aside, or pay extra in order to get the balances down quicker.
If you don’t want to refinance or take out a loan, another option is to take some of the money you’ve budgeted towards extra expenditures and use it to pay down as many bills as early as you can.
Regardless of how you do it, reducing and eliminating debt now is one of the most important steps you can take to be able to retire with confidence and peace of mind later in life.
When you plan for your retirement, you’re going to do your best to estimate how much you’re going to need to fund that lifestyle. Based on this information, you’re going to shoot for a savings goal.
But what about emergencies?
The fact is that was can’t plan for everything that’s going to happen, and medical emergencies top the list of unexpected expenses. Small things like a cold might not be that bad, but as we get older the chances of us dealing with more expensive, chronic ailments become greater and greater.
At some point, those medical bills are going to pile up, and if you haven’t planned in advance for these medical expenses then you’re going to find your retirement goals having to shift to match your new financial retirement. Avoid these unfortunate problems and ensure your peace of mind by creating an emergency fund now.
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Of course, one of the hallmarks of any good plan is that they need to be able to change with the times. Regardless of how circumstances are now, things might change in the future. Your financial plans and goals need to be able to change to take advantage of more prosperous times, or protect itself against loss should times become lean.
As we mentioned before, talking to a financial planning professional is really the first, best thing you can do to start your journey to retiring with confidence and peace of mind. We can help you make the decisions now that will have long-lasting ramifications. Contact us today to start mapping out your financial future.
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This article was written by Clint Haynes, CFP®. Clint is a Certified Financial Planner® and Founder of NextGen Wealth. You can learn more about Clint by reading his full bio here.
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