22 minute read
Retirement may seem like a long way off for some of us, or just around the corner for others. Regardless of how close or far you are from that date (whether that’s early or on-time retirement), the time is now to take steps to make your retirement effective.
Here are numerous tips from our panel of experts about the saving, investing, and wellness actions you can take to prepare for retirement, starting right now and continuing through to that magical future date.
Here are all the experts represented in this roundup:
When it comes to retirement, time may be your greatest ally. The sooner you start creating wealth and passive income the better off you’ll be down the road.
The most historically proven asset class to create wealth and passive income is real estate. Building a portfolio of income-producing rental properties in well-chosen markets creates true wealth and financial freedom. And having the right team to work with will accelerate your results.
To oversimplify, save as much as you can as fast as you can, in order to acquire one rental property after another until you reach your income goals.
Take advantage of compound interest. The primary benefit of investing now versus in five or 10 years is the force of compound interest. Compound interest is the phenomenon of earning interest on your previously earned interest. It can make your savings grow exponentially over long time periods and is a crucial reason not to delay saving for your retirement.
Invest for your long-term retirement goals — not your retirement date. You may have been told to keep allocating more of your portfolio toward bonds as you approach retirement. However, most investors’ goals extend long past their initial retirement dates. You may have 20 or 30 years more that your money needs to work for you, so you may need to continue owning assets that have historically provided high returns over long time periods — stocks are hard to beat in that regard.
Don’t get too conservative too early. Due to ongoing medical advancements, you may live longer than you had originally planned. This paired with the insidious effect of inflation means you may need more investment growth in retirement than originally planned. Investing conservatively too early could mean sacrificing the very growth you require to avoid running out of money in retirement.
Retirement is like the holidays: Something we know is coming, but not for a while.
For those in their 20s and 30s, it’s January. No rush. What you want to do right now is put money into a retirement plan. That potentially offers two current goodies you can use today. First, free money from your employer in the form of a company match. Second, a potential tax write-off.
For people in their late 40s and 50s, it’s October. Gulp: Time to make a plan. First, imagine your ideal retirement. Next, slap a price tag on it. Third, take a look at what’s in your wallet (your savings) and how much you expect to add before the fun begins. Finally, if there’s a shortfall, fix it; either by spending less, making more or some combination of the two. And if you need help to get where you’re going, now’s the time to find it.
The best step you can take today for retirement is to automate your saving and investing process. That’s incredibly easy if you have a 401(k) plan or similar at work, but even if you don’t, you can still automate. Even $5 per week is better than not saving and investing at all.
One great way to get moving in the right direction is to split your payroll direct deposit so a portion goes into a Roth IRA, traditional IRA, or other tax-advantaged retirement account.
You can also setup recurring transfers through your bank, investment company, or use an app like Acorns or Evati, and they will take care of everything for you. Over time, your savings will start to really add up and the effects of compounding will help grow your nest egg even more.
What’s most important is that you don’t ignore your savings. If you have not already, it’s time to get started!
The No. 1 thing I’d say is to give your money purpose. By that, I mean instead of just “saving money,” earmark that money for something. For example, a vacation, or maybe your kid’s college tuition. Or maybe even early retirement. We humans are far more likely to actually save money if we’re saving for a purpose. When we can see a light at the end of the tunnel, the discipline to save gets much easier to handle.
What else? Take a hard look at what makes you happy and only spend money on those things. But, here’s the kicker: Not everything that you’re spending your money on makes you happy. In a previous life, I drove around in a supercharged Corvette and Cadillac CTS. I also had a Yahama R1 sportbike. In other words, I had a bunch of toys that I thought made me happy. But, they didn’t. I always knew they didn’t, but I refused to let myself believe that.
Sometimes, determining what makes us happy takes some hard reflection. I’ve found that once we go through that process, we come out the other side better prepared to manage our money in a smart way.
Pay yourself first! Sounds interesting, when you have a laundry list of expenses, but you should be at the top of the list. You work and push yourself so hard, it would be a shame to pay everyone ahead of you, dealing with only what’s left (if there is anything, that is).
Therefore, to start out, you can put a small percentage to your 401(k), if you have the option with your employer (if you work at a company/are an employee). This gets taken out, pre-tax, and is you paying yourself, automatically. Then, start to increase that throughout the year as you become more comfortable with automatically paying yourself first.
Once you are ultimately comfortable, there are many brokerage sites and applications that allow you to trade, commission-free, within certain investment vehicles. Further, you can do this systematically and automatically. This can also be an option if you’re not an employee with a 401(k) as an option.
Once you know your balanced point with how much you are able to save/pay yourself first, I would then recommend negotiating and shopping out all expenses that you can. That includes, house and auto insurance, internet, cable (hopefully you can cut the cord!), and even your supplier of gas and electric. That way, you can keep control on the expense side or even reduce it to save even more.
To sum it all up: Pay yourself first, automate as much as you can, and control/reduce expenses. Those would be three key tickets to starting out!
I believe it starts with your financial situation. If you are carrying debt, it might be tough to have available money to save for anything. Start by getting your finances in order. Clearing debt, reviewing expenses, and building a budget gives you an excellent foundation for saving.
Simply putting money away isn’t enough these days. You need to multiply that cash by taking advantage of compound interest. You will need to find an investment vehicle that can help grow your savings for your future. Stocks, bonds, and real estate are common types of investments.
I believe regularly contributing some percentage of your income or a set amount of money each month is the best way you can prepare for retirement. Everyone’s situation is different, so you need to find an amount and retirement strategy that works best for you.
Here’s an easy tip to use if you’re struggling to find extra money to save for retirement. When you get your next raise, automatically increase your savings by the same amount. Set it up as an automatic transfer out of your checking account into the savings/investment of your choice, but make sure you make it an automatic transfer. Schedule the transfer to start on the same date as your raise goes into effect. You’ll never miss the money, and you’ll be on your way to saving for retirement. Do this same trick with each year’s pay raise, and within a few years you’ll be saving the suggested 10% to 20% toward retirement.
Retirement brings with it a unique set of financial needs. In retirement, you need to generate income from your assets. This means you are in the distribution phase of investing rather than the accumulation phase. Financial freedom – and a secure retirement – is achieved when your portfolio income exceeds your living expenses.
You can prepare for retirement right now by investing in high quality dividend growth stocks and other income producing securities. By building your retirement portfolio for rising passive income now, you will be ahead of the game when you stop working. And if your portfolio starts producing more income than your expenses, you have the enviable option of retiring ahead of schedule.
There are two things you should do right now to save for retirement. The first is to actually start saving. Even if it’s a small amount, it’s better than nothing. And it’ll be able to grow and compound over time. The biggest issue many people face is not putting away anything, because they feel saving $20 a month won’t make a difference. While it may not allow you to buy a house on a tropical island, it will offer you freedom one day.
The second is to envision what retirement means to you. What do you want to do with your time? Volunteer? Travel? Whatever it is, you need to get specific with your retirement goals. Doing this will increase your motivation to save money, and as a result, increase your odds of success. You can’t just say you want to retire one day. That isn’t exciting. But saying you want to travel to Iceland to see the Northern Lights and visit Italy to see the Colosseum with your own eyes is exciting and motivating.
The first thing you should do to start preparing for retirement is to invest as much of your income as possible into tax-advantaged accounts like an IRA, 401(k), or HSA. Automate this process as much as possible and strive to invest 20% of your income and invest in a target-date fund to ensure decent returns. This simple strategy will better prepare you for retirement than most other Americans.
With interest rates at record lows and stock market valuations at record highs, the key is to think “alternative.” Research shows your expected return over 7 to 15 years is inversely correlated with asset valuations at the beginning of your holding period. And the 7 to 15 years’ investment return before retirement is critically important to the size of your next egg.
So think about alternative asset allocations like properly valued foreign equity markets, specialty situations in the U.S. market, and commodities. Consider alternative ways to grow equity through side hustles that can turn into a growing business with value. History has shown that when the major asset classes hit bubble valuations, that alternative assets and investment strategies provide greater opportunity to prepare for retirement.
Do you hope to retire sometime in the future? One of your best steps might be to rightsize your life as soon as possible. Twelve years ago, my self-employed husband and I were in our mid fifties. Although we lived within our means, we had no savings or plan for retirement.
But when the housing crash happened, we realized that we needed to do something, and the idea of rightsizing was born. Rightsizing, unlike downsizing, is making choices that fit each family’s unique needs, wants, and capabilities — all within the framework of eliminating the unnecessary and focusing on what works.
We started by first analyzing how we were spending both our time and money, and whether it matched our values and hopes for the future. After that, we started eliminating things that didn’t fit. Things like a far bigger house than we needed, extra cars and toys, or living in a neighborhood where we didn’t really know people.
We then rightsized (rather than downsized) our home to fit our family with a focus on what matters to us. By doing that, we have managed to save a tidy amount of money and have some left over to travel and do the things that are most important to us. Rightsizing, or consciously choosing to live a life that is important to us, has lined us up to experience retirement both securely and with the freedom to enjoy the years ahead. I write about it all the time and highly recommend it!
The best way to save and prepare for retirement is managing your finances early on, well before you are nearing retirement age. Start by creating a plan to pay off any consumer or student loan debt.
You will not be able to reach financial independence if you’re caught in a cycle of living just at or above your means. Track your monthly income and expenses to find out how much you earn, where your money is going each month, and what your savings rate is. Take advantage of your employer-sponsored retirement plans by having money deducted right from your paycheck before it even hits your bank account. This will force you to do the right thing for your future-self.
I always think back to attending a church that was big on sending missionaries out into the world. Getting to know and living among them, I found out they’re a frugal bunch.
I’d watch as they would rearrange their lifestyles to adjust for living in (oftentimes) Third World countries where luxuries aren’t as prevalent as here in America.
Everything was toward this aim, from where they lived, ate, and how they spent their money. My aim is to apply this in my own life, too, as I near retirement. Just by downgrading one’s lifestyle – be it your home, transportation, spending – this will all set you up for retirement.
If you don’t make enough money at your job, there is still a way for you to start saving for your retirement. You should find or create an additional stream of income. It can be a side hustle (such as flipping items on eBay) or you can find a part-time job. Once you do that, make sure that you save that money. Don’t spend it on anything. Those funds can then be added to a retirement account.
When planning for retirement, most people think only of investments. However, managing your mortgage debt in a way that is in line with your retirement plans is critically important.
Far too many people enter retirement with a mortgage. Doing so will require larger withdrawals from your retirement accounts and investments to make each monthly mortgage payment. Don’t underestimate the power of additional small payments toward the principal on a mortgage. These extra principal payments can shave years off your mortgage and allow you to enter retirement debt free.
The first step is to get your financial house in order today. That means tracking your spending and budgeting, saving money on what you value most, paying off personal debt, and creating an emergency fund.
Once this is completed, I recommend contributing to your 401(k) via the company match, which is usually in the range of 3% to 6%. Just by making this contribution each paycheck, and receiving the company match, you are saving and preparing for retirement right now. If a company match isn’t available, I would make contributions to a tax-deferred investment vehicle like an IRA. Make it simple, add money, and repeat.
Many people underestimate the costs of healthcare in retirement. Fidelity has released a study saying that the average couple, aged 65, will need almost $300,000 just for healthcare costs in retirement alone.
One of the best ways to save toward these future health costs is to open a health savings account (HSA). If you have an HSA-qualified high deductible health insurance plan, you can contribute money into a health savings account each year.
You can deduct your contribution from your taxes that year, and the money grows in the account with interest over time. You can use the funds for qualified medical expenses any time.
But many people don’t use as much as they think they will each year, so they tend to grow a significant sum in this account by the time they retire. In the future, you can use the money toward things like Medicare premiums, deductibles, copays, and coinsurance. You can also use funds for long-term care expenses and dental, vision, and hearing costs, which are not covered by Medicare.
Fund your health savings account (HSA). When people talk about retirement, a lot of times they talk about vacation, how to stretch their money during retirement, what to cut down or where to spend money, just to name a few.
They also think about building wealth, buying a retirement house, finding the right state to retire, healthcare plans to choose, etc. That said, not a lot of people talk about HSAs. If you have a high-deductible healthcare plan, it’s best to invest money in an HSA, let the money grow, and use it later for medical-related expenses.
Putting money in your HSA has so many benefits. First, your contribution is tax deductible. Second, your HSA investment could help you earn money through capital appreciation, dividends, etc. – and your earnings from that HSA are tax-exempt. Third, when you use the funds later for medical-related expenses, those funds are non-taxable.
Healthcare costs are high and will become more expensive as you grow older. When you take this benefit into account, you’ll be able to spend less money on an important thing, healthcare, because your HSA will help you with that.
One of the most important things anyone eyeing retirement should do right now is check their investment portfolio’s asset allocation.
We have been in a multi-year stock bull market. And one of these days we are going to experience a significant correction. It’s been so long since this has happened, that I think most people have become complacent.
They think the stock market will never go down. So, it may be a good time to trim back your stock holdings and put that money into cash or bonds. Then, when the inevitable stock market correction comes, you will be happy that you did, and you will not feel that your retirement plans are in jeopardy. In fact, you will have some extra cash ready to put to work at lower stock prices.
This is the No.1, most useful financial technique to implement today. Most people have no idea where their money goes, or what percentage of their net worth they are spending. If you don’t know where you are financially or where you want to go, it’s hard to save and prepare for your retirement. In our books, Your Simple Path to FIRE and Your Retirement Dream IS Possible, we give you the interactive spreadsheet we use ourselves.
Rattle the home cage
Housing costs are one of the highest expenses of any household. Between paying the mortgage, repairs, maintenance, insurance, and taxes, this adds up to a considerable chunk of change annually.
Contemplate downsizing, making money hosting a traveler by renting out a room in your home, or perhaps take on a permanent renter to help pay your mortgage. When you vacation, try a home exchange or do a house sit to cut this category of expense down to size.
The most sensible way to save and prepare for retirement is to literally “Save Yourself!” People often think retirement is all about saving and investing, but it won’t do you any good if things like your health and relationships aren’t in good shape as well.
In addition to the traditional financial advice you get about retirement, take time to plan for the non-financial aspects. That includes the mental, social, physical, and spiritual parts of life in retirement. It will be more valuable than any nest egg you build up, because running out of money pales in comparison to running out of family, friends, health, and ultimately time.
Save as much as you can especially in your retirement accounts. Whether you have retirement plan at work (401k), your own (IRA), or both take the opportunity to contribute to them. That money will grow at a faster pace the more you have in them.
Quick ways to sensibly save and prepare for retirement now are to cut eating out and the cord to cable. Those are two simple ways to save $3,000 to $4,000 a year that can be put toward retirement. Another great tip is to put all raises/bonuses toward a 401(k) if your company offers one. You won’t miss the money, and you’d be surprised how quickly it can grow if you set it and forget it!
To start saving and preparing for retirement, it’s wise to figure out the dollar amount you’ll need to stop working. There are many ways to calculate an estimated number, but one I like is the 4% rule.
If you are investing your savings, theoretically your investments will increase around 7% and inflation will average at around 3%. If that’s the case, you’ll receive 4% from your investments after accounting for inflation, so you can spend that 4% of your savings without consuming any of your principal.
As an example, if you spend $30,000 a year on expenses, you can work backwards ($30,000 / .04 = $750,000) and calculate that you want to have at least a $750,000 nest egg. Keep in mind, this is an estimated figure based on the 4% theoretical concept.
Once you’ve figured out your number, you can work backwards again to set daily/weekly/monthly budgets. You can even automatically set your bank account to put a percentage of your income into your savings account, so you know you won’t touch that amount. This will help you determine if you should pass on that daily espresso, start cooking instead of eating out, or cut back on nights out.
One of the best ways to save money is to house hack, as living costs are usually the highest expenses. This may require moving back home or renting out rooms of a home you’ve purchased. After you’ve saved money, start investing in ETFs like SPY and QQQ. If you are eligible to, add money to retirement accounts like 401(k) and IRA, especially Roth 401(k) and Roth IRA if you’re under 40.
There are two things that I would recommend for saving and preparing for retirement right now.
The first is to focus on growing the gap between your expenses and income. It isn’t just about cutting or making more money. It’s about doing both to maximize your savings.
Just to be clear, your expenses need to be lower than your income and not the other way around, which leads to debt. Grow that gap and take the excess and put it toward paying off debt first and then hit the retirement savings hard.
The second is to improve your influences. Referring to the famous Jim Rohn quote, “you are the average of the five people you spend the most time with,” this can have a profound influence on how you approach retirement and money as a whole. Finding positive influences that make it a priority to save money will only encourage you to do the same.
To be honest, retirement isn’t about money. It’s about crafting the life you want to live and doing the “work” you want to do. It’s about retiring to something and not away from something. Whether it’s traveling, spending time with the grandkids, or building stuff in the garage, this is your chance to do everything you said you wished you could do.
Find influences that can guide you to a healthy retirement and push you to thinking about what is truly important to you.
The best thing you can do today to save and prepare for retirement is to stop overspending.
Too many people spend their prime earning years living well above their means. The result is a lot of debt that causes them to delay retirement. It’s important to note that we are not talking about being exceptionally frugal today to live large in the future. We’re talking about a shift in mindset.
Living below your means doesn’t mean you can never enjoy yourself. It simply means that you take stock of what is important to you, and then increase your earning power to create more income than your cost of living. Once you stop overspending, you have money to pay off debt and save for retirement.
Start as early as possible, take advantage of the power of compound interest, save like you’re planning to retire early, and automate the process so you don’t forget or let it slip. Look at your monthly costs and cut out anything wasteful or extravagant and make sure that saving goes into your retirement.
Nothing is guaranteed in life. Even if you have a 401(k), IRA, pension, etc., you may still run out of money.
To start preparing for retirement now, I suggest investing in income-producing rental properties. By having one rental property that makes you $250 a month, you will have a stream of income that will supplement your retirement income. If you bought 10 properties that made you $250 a month, that would be $2,500 total each month in passive income.
You can check out an article I wrote about how every rental property you buy makes you money in six different ways.
- Monthly passive income
- Equity capture
- Forced appreciation
- Market appreciation
- Tenants pay your mortgage
- Tax advantages
All of the above add up to a huge benefit for you now and when you retire.
Another thing you can also do is sell any one of your properties for a large payday in the future. Or, you can pass it down to your children and grandchildren as generational wealth.
Let’s face it – when it comes to saving for retirement, there is no rule of thumb regarding the definite time to start. However, while saving and preparing for retirement can be challenging, starting early is highly advisable.
Everyone wants to enjoy their retirement as long as possible. If it is something you aspire to, prioritizing your retirement saving the moment you start earning an income is one of the sensible ways to achieve your goal. Apart from this, there are other sensible ways to save and prepare for retirement right now.
The retirement reality checks for planning
Determining what you expect in your retirement by doing a reality check based on your current status is your first step toward effective retirement saving. Consider some factors including your current age, current annual income, possible monthly saving, retirement age, inflation rate, and as well as life expectation to help you plan. There are some retirement calculators online to help you out. These retirement reality checks will help you to decide.
Below are some sensible ways to save and prepare for retirement right now:
- Create an achievable saving for retirement
- Open a low-stress IRA
- Re-evaluate your budget
- Maximize your employer-sponsored plan
- Work out several income streams
- Consider hiring an expert to help you plan
- Don’t live above your budget
- Plan to pay off your loans before retirement
The earlier you start saving for retirement, the better for your future. It means that your money starts growing and working for you. The above tips have been proven to be effective by many retirement experts and it is sure they will work for you. Start saving for retirement now!
In terms of preparing for retirement, the best thing one can do is save early and often. Compounding of returns over the years is an enormous gift and allows most people to retire comfortably if they begin saving for retirement in their 20s or 30s.
Also, for those in their 30s or younger, you should be taking a lot more risk in your retirement portfolios. Stocks have always outperformed bonds over long periods of time, and you won’t need your retirement money for decades.
For those in their 40s or older who have not saved enough yet, don’t fret. Start saving as much as you can now. If you have a 401(k) plan, make sure you get every penny of matching that your company offers. Company matches are free money! If you can, max out your contribution at $19,000 per year. The tax benefits are enormous, and you can potentially build a large retirement portfolio.
Lastly, build a retirement plan using good, accurate online software, or have a financial planner help you do this. Everybody should know what their financial projections look like, and when they will be able to retire.
1.Maximize your 401k contributions
If your job offers a 401k plan, there’s a limit on how much you can contribute. Regardless of the limit, you should contribute the maximum allowed. This is particularly helpful to retirees given that most employers will match a percentage of your contributions. Your employer’s contribution is free money. You can’t beat that.
2.Don’t overspend on life insurance
Many agents and companies alike will encourage people to buy as much life insurance as possible because they say, “more is better.” Having life insurance is great, but there is a limit to how much you need.
Life insurance is meant to cover a potential loss. Determine how much coverage you need and buy that amount. Don’t go beyond that. If you need $2 million in coverage, then buy two million.
Sure, it may feel good to have additional coverage, but remember most life insurance plans will expire before you pass away. All those extra dollars you would spending on excess coverage would be better off in your 401(k) or mutual fund.
3.Take a medical exam when buying life insurance to save money
The biggest trend in life insurance right now is the ability to purchase coverage without having to take a medical exam. While the convenience of not having to take an exam is wonderful, it comes at a cost.
Compared to plans that are fully underwritten where the insurer gets blood, urine, and full medical records, nonmedical exam plans can cost anywhere from 20% to 100% more.
That’s a lot of extra money to pay each month let alone over many years. Save some money by taking a medical exam when buying life insurance. This will free up more money each month to put toward your retirement.
4.If you’re risk averse, allocate a portion of your portfolio into a fixed annuity
Fixed annuities safeguard your principal so you can never lose it. The upside gain potential is smaller because of this protection, but that’s the price you pay for a no-loss guarantee.
If you’re more on the conservative side of the investment spectrum, put a portion (not all) of your account into a fixed annuity. This way you can feel comfortable knowing the principal you invested can never decrease, while still having the potential to realize gains on your investment.
5.Setup an automatic EFT
Sadly, most people aren’t disciplined. That’s why it’s highly recommended you setup an automatic transfer of funds from your checking to your savings or some kind of investment account.
This way you never have to think about the money being transferred. You don’t need to be disciplined since it happens automatically.
Everyone knows that you need to save money for your retirement. When you’re paying off debt, it can make it more difficult to put a lot – if any – money away for your future. You might even think you can’t afford it, but I suggest that you can’t afford not to. Money shouldn’t be the only thing that you continue to invest in long term.
My advice to anyone thinking about retirement is to consider how you’re investing in yourself. There’s no sense reaching retirement with adequate savings if you’re not in the best physical or mental condition when you get there. My question for you is this: how are you investing in your body and mind today, and in future, so that you can truly enjoy your retirement savings when you get there?
Published by Debt.com, LLC