Last weekend I attended a neighborhood party. I knew a few people, but they were leaving when I arrived, so I joined a table of neighbors. I didn't know them well other than a friendly wave. As the evening went on, someone brought up the topic of retirement. The average age at the table was around 50. No one knew that I was a financial planner, so I just sat back and listened. I will have to admit it was not easy not to interject. Of course, I eventually had to.
It still amazes me how little people know about planning for their retirement. Two people at the table will be receiving pensions from Ford and plan on retiring at 55. They talked about how they would retire, collect their pension, find another job, or do consulting work. This was when I had to interject. I commented that "There is no guarantee that will happen." I explained I was a financial planner, and from experience, I knew from working with some of my current clients that it is not easy to retire early. Most regret their decision and are now working full or part-time for $8 an hour. They gave up a job making $28 an hour to make $8. I continued, no matter what age you want to retire, make sure to "run the numbers" to make sure you have enough to last for the rest of your life before you retire.
The discussion continued. How much money is enough for retirement? There is no easy answer to this question. What is enough for one person is not enough for another.
What's important to realize is that calculating a retirement savings goal does more than provide you with a dollars and cents estimate of how much you'll need for the future. It also requires you to visualize your retirement dreams' specific details and assess whether your current financial plans are realistic, comprehensive, and up-to-date.
The following strategies will help you do a better job of identifying and pursuing your retirement savings goals:
- Double-check your assumptions. Before you do anything else, answer these critical questions: When do you plan to retire? How much money will you need each year? Where and when do you plan to get your retirement income? Are your investment expectations in line with the performance potential of the investments you own?
- Use a proper "calculator." The best way to calculate your goal is by using one of the many interactive worksheets now available free of charge online and in print. Each type features questions about your financial situation as well as blank spaces for you to provide answers.
An online version will automatically perform the calculation and respond almost instantly with an estimate of how much you may need for retirement and how much more you should try to save to pursue that goal. If you want assistance, contact a financial planner in your area. Remember that your ultimate goal is to save as much money as possible for retirement regardless of what any calculator might suggest.
- Contribute more. Are you among the almost three-quarters of retirement savers who say they could set aside an extra $20 each week? If so, here's some motivation to actually do it: Contributing an extra $20 each week to your plan could provide you with an additional $51,389 after 20 years or $130,237 after 30 years, assuming 8 percent annual investment returns. This example is hypothetical and for illustrative purposes only. Investment returns cannot be guaranteed.
At the very least, you should try to contribute at least enough to receive the full amount of your employer's matching contribution, if offered. It's also a good idea to increase contributions annually, such as after a pay raise.
After all, when was the last time you heard a retiree complain about having saved too much money in his or her retirement plan?
I am dedicated to walking you through the steps you need to take control of your financial future and prepare you for a secure retirement. Now is the time to start focusing on your finances. Schedule an appointment with us today!