Whether you’re 20 or 50, you can plan for a great retirement, although the younger you are the easier it will be to build up your future nest egg. These steps can help get you there.
Assess Your Needs
There is a formula that says your retirement savings should provide you with around 70% to 80% of the income you had when you were working full time, but for some people, this measure might be out of date. What retirement means for many people has changed a lot in recent decades, and you may want to spend some time traveling or may be paying for children to attend college. People are also living longer. Try to accurately assess what your expenses will be and keep in mind that you may need enough money to cover two or three decades or even more. Think about your retirement goals in the same way you would about any other goals. This can be just as vital a time in your life as any other.
Assess Your Timing
The decades you have ahead of you to save if you are in your 20s or 30s mean you can take on a lot more risk in your investments. Some of this risk should be calibrated to your tolerance for it, but the bottom line is that you can’t put everything in entirely safe vehicles or you risk it growing at a rate that is slower than inflation.
However, over 30 or 40 years, the daily or even yearly fluctuations of the stock market tend to level off into an overall rising line. If you are older, you need to focus more on maintaining capital instead of growing your wealth, at least the portion of it that you will need for retirement. The good news is that if retirement is just a few years away, you don’t have to worry about inflation like those who will retire in 30 years.
Particularly if you are younger, putting every penny you can toward your retirement will pay off in the future. The reason is that the value of even small amounts of money will experience compound growth and be worth a great deal over decades. This means that it’s worthwhile to free up even a few extra dollars. For example, if you are paying off more than one student loan, you may want to look into refinancing them into a single loan with a private lender. This could result in lower interest rates, and you could use the money you save to put a little more toward your retirement. Be sure that you are likely to make more on your retirement investment than your interest rates will cost you over the long run.
Many people do not think of estate planning as a part of retirement planning, but it is not just about planning for what will happen to your assets. You should assess the need for long-term care insurance and look at whether you want to place assets into an irrevocable trust to protect them from potential nursing home costs. Estate planning also means thinking about who you might appoint to make medical and financial decisions on your behalf if you become incapacitated, even temporarily.