When it comes to retiring, you hear many horror stories how most Americans don’t have nearly enough money saved. As a result, their chances of actually retiring are slim. Reading all of these articles, you might wonder what you can do to ensure you not only can afford to retire, but can do so when you want. In order to achieve these, you need to follow a handful of critical planning basics.
When you follow these important retirement planning basics, you are able to achieve the retirement you dream of. No more worrying or wondering if you have enough money saved or if you will be able to retire at all.
By following these basics, you know you are on track and as a result, you will not bother with worrying. So what are these critical retirement planning basics?
4 Critical Retirement Planning Basics You Must Follow
#1. Define Retirement
If you ask most people to define retirement, they will likely tell you about no longer working or spending their days doing what they please. In the very short term, this is good, but in order to be motivated to save and strive for retirement you need to define what retirement means to you.
Think about it. If you were to simply say retirement means I get to no longer work, that might excite you today, but on a random Wednesday afternoon, ten years from now, it will have lost its luster.
The result is you not saving money for retirement and spending it on something in the moment. But when you define what retirement means to you, you change this.
If retirement to you means, buying a house in Hawaii and watching sunsets and playing golf, this will excite you long term. Fast forward to that random Wednesday afternoon, ten years from now, and you will still be excited to save and plan for your retirement. And when faced with a purchase, you will think twice and see what impact it will have on your future.
So take some time and really define what retirement means to you, write this down, and keep it somewhere you can refer to on a regular basis.
#2. Understand What You Need
Arguably, the above point is the most important of the retirement planning basics, but this one comes in a close second. You need to understand how much money you need. You can’t just read the magazine covers telling you that you need $2 million dollars. You need to figure out exactly how much you need.
Luckily there are some amazing online retirement calculators that can help with this. You can also just ballpark it by multiplying your expected spending by 25. This will give you a rough savings goal.
Just a note, while ballparking the number is good for now, you really do want to sit down and make sure you get a number specific to you and your goals. Using a good online retirement calculator will make this task simple.
#3. Assess Where You Are
So you have retirement defined and you know how much you need to save. The next step is to see where you are. For some, this step might hurt as you are way behind with your savings. But you need to be honest with yourself and look at where you stand.
Doing this serves two purposes. First it helps you to know just how serious you need to get about saving for retirement. And second, it helps you know if you need to revise your retirement plans.
If you need to start saving more money, there are countless things you can do. Here is a small handful.
- Increase your 401k contribution by 1%
- Put $25 a month into an IRA
- Clean your house and sell the things you don’t need or use and invest the money
- Save the majority of your tax refunds and raises at work
These are just a few things you do to boost your retirement savings. Don’t fall for the trap thinking that $25 extra a month doesn’t matter. It does.
For example, let’s say you save as much as you can but are going to end up short of your savings goal. Does this mean you give up completely on the idea of retiring? Of course not. You just have to revise your goal.
Maybe instead of retiring to Hawaii, you retire to another warm climate state that has a lower cost of living. Doing this is better than nothing at all.
Same idea holds true with retirement in general. If you save nothing, you are going to have to work and never retire. But if you save something, you can at least retire one day and not have to work.
#4. Set Up A Plan
You’ve gone through these critical retirement planning basics and now comes time to actually develop a plan. This plan encompasses everything I’ve talked about plus some more planning steps.
Your plan should start out with a detailed description of what retirement means to you and list out how much money you need to save. Then you should outline ideas to save more money if you are behind.
Next, you need to put these ideas together and create a plan for what you will be doing to save more money. What steps will you take? How much will you save? Can you lower some expenses to save more money?
After you do this, you need to start tracking your progress. You don’t have to do this monthly, but annually would be a good idea.
You want to see where you currently stand and the progress you have made on improving your situation. When you do this, you stay motivated to keep saving for retirement.
As the years pass and you continue to monitor your progress, you can make small tweaks along the way to save more or revise your retirement goals. Doing this will help ensure that your retirement is as exciting as it can be.
So there are the 4 critical retirement planning basics you need to follow to ensure you can live out the retirement of your dreams. Start taking action now. The sooner you get serious about your retirement, the sooner your dream will become a reality.