Have a seat and take a deep breath. The news you are about to read might startle you, but it’s true.
You’ve reached a time in your life where you are beginning to think about retirement. This is good! If you have even estimated an amount that you would need based on your savings, the lifestyle you intend to lead, where you plan to live and how long you plan to live, then even better. However, here’s where the news kicks in: you would have probably underestimated the amount. While it’s good that you have at least begun planning, but it’s likely that you need to chalk up a new plan because you need to take a closer look at your retirement plans. Luckily, there is no shortage of solutions.
Whether you are in your 20s or 50s, there is ample time to make tweaks to your portfolio, rethink savings rate, alter timelines and ensure that your money lasts you as long as you need!
If you haven’t started planning, you should. Financial independence and retirement planning aren’t only for top earners. Those who don’t make large salaries too need to start planning for their retirement.
Here are 12 tips for investment for retirement by leading finance gurus:
1. You Must Invest If You Want To Get Ahead
Everyone wants their money to last them through thick and thin. If you want your money to last you and keep up with inflation, then investing is essential.
Bill Bernstein, a best-selling author who wrote popular books like The Four Pillars of Investing and How Millennials Can Get Rich Slowly, states in his podcast that people who don’t invest and hold cash are undisciplined. He says that to get ahead, you need investment.
If you’ve decided to dip your toes in the investment pool, you need to start with something you know and something small. Don’t jump the gun and hit the stock market instantly. Pace yourself and then branch out. When you start branching out, first do research and once you are convinced, start putting in small amounts to start with. As you learn, the amount can increase.
Yes, it can be an intimidating process as you will be risk-averse in the initial stage. Don’t worry, at first, everyone is intimidated by investment! It takes time to ease into the process.
2. Start Small and Diversify
As mentioned, you need to start small. Start with things you know and then branch out. A diverse portfolio is very lucrative. You want to include a variety of bonds, real estate, stocks and other investment vehicles in your portfolio. Mutual funds are a good way of diversifying because you can invest in different companies and industries. Why is diversification advantageous? Not only does it reduce the risk of your retirement fund but simultaneously helps it grow.
Ensure your investments provide a dividend so that amount can be taken and reinvested which create more dividends and goes on like a nice snowball effect.
Tip: Try not to more than 8 to 10% of your funds in a single investment. Diversify so that you have a backup in case something goes wrong.
3. You Need To Save To Invest
Save early and save often, cannot stress on this enough. Saving a small amount every year can significantly impact your investment in the long run. For example, if you save $1000 yearly from the age of 18 which grows at an average rate of 8%. By the time you are 60, this amount can grow up to $350,000. Similarly, if you start saving this amount at the age of 30, when you are 60 you will have only $130,000. So starting at the earliest is the key.
According to experts, it’s recommended that you are debt free by the time you reach retirement if not, at least clear off larger or major ones like huge mortgages.
Unlike meager dining and travel expenses, debt payments cannot be trimmed off as easily, especially when money gets tight.
An idea would be for retirees to pay off mortgages at the earliest or sell in a healthy market and downsize to a home which is smaller and needs less upkeep.
Similarly, accelerate all other loan payments and ensure they are paid off before you reach retirement.
Another significant debt which most people have is credit card debt. To curb this, use cash for purchases.
By reducing existing new debt and limiting new debt, you can minimize the retirement income which is spent on paying interest.
Tip: A good idea is to split your income into three categories. One dedicated for everyday expenses like transportation, food, housing, entertainment, etc. Focus the second category on savings. This could include emergency funds, retirement funds or anything else you need to save for. Last but not least, focus the third on paying off debts. This strategy will assist in paying off debts as well as saving for the future.
5. Make Long-Term Investments
Some people invest in stocks with a view of making quick money in a short-term. Those with this short-sighted view, for the purpose of short-term investment, lose money. On the contrary, investments in stocks should be a long-term plan. Put your money into your 401(k) and don’t touch it until you reach retirement.
The stock market comes with tides, and you need to be ready to ride the wave when you make long-term investments. It’s normal for the market to rise and fall but for you to successfully build your retirement fund you ought to stay loyal to your stocks even when they have a bad day!
Budget and planning for retirement go hand-in-hand. For your retirement which might be years away, you have to budget today. If you are smart with your money from an early stage, your days of retirement will be better off. Hence, you need to start saving money which goes toward your retirement.
You also need to take into consideration the amount of money that you will need during your retirement. Although it’s difficult to answer this question at this stage, you need to think about so as to come up with an effective plan for your retirement. Else, your goal for your retirement fund will be unrealistic.
7. Estimate Your Retirement Expenses
There may be few expenses which will be higher like health care and those like clothing, commuting, etc. may reduce. The amount you spend entirely depends on how you plan to live during retirement. Say you expect to travel a lot; your costs would be higher than what you spend presently.
Similarly, if you sell your house in an expensive location and move to a smaller condo, then your expenses might drop.
So think of all factors and then estimate what your expenses during retirement would be like.
8. Take Future Medical Costs Into Account
While your routine health costs are likely taken care by a few policies, if you retire at 65 or later, you need to take into account other supplemental coverage which will pay for non-routine expenses that will likely crop up with age.
Long-term health care insurance will help protect your retirement nest egg. If you buy life insurance for seniors plan earlier in life, it guarantees lower premiums.
9. Get Organized
Organization is the key to successfully planning your retirement. You need to chalk out a detailed financial plan and try following it to the tee.
A detailed record of money helps you figure out where you spend your money. Making this a habit now will make it much easier when you retire.
10. Don’t Touch Your Retirement Money Now
Although highly tempting, do not touch your assets to meet short-term goals. Resist the urge and always think of the bigger picture. The longer your assets are invested, the more they will grow and give you in the future. A small sacrifice now can go a long way in the future.
Instead, you can maintain a savings account which has a certain amount of surplus which you can use during emergencies or unforeseen events or when unexpected costs arise. This will limit your need to touch the investments.
11. Work with a Financial Advisor
A professional understands your personal finance and keeping that in mind will guide you in the right direction and ensure you are making the right investment choices to meet your goals.
There is no harm in trying to do this by yourself, but most often, it will be challenging to meet all your goals.
Financial advisors will be able to ensure that your investments are diverse, they will account for any risks and manage your funds regularly.
12. Regularly Review
After your retirement plan has been detailed, you need to review it constantly. It’s like a long-term investment; you can’t just invest your money and forget about it, you need to keep a check on it. Just like that, your plan needs frequent reviews to ensure your goals, investment, plan, etc. are up-to-date.
It’s Time to Ease Your Way to Retirement
Did you think with just a few steps, you will be ready to plan for your retirement?
This handful of tips from the experts will help you go a long way in planning for your retirement.
It’s not difficult, start today and you will see a world of a difference in a few years. By the time you hit retirement, you will be settled and content.