It is an understandably typical life goal to be able to enjoy a comfortable retirement where you have the security of enough money behind you to put your feet up and relax, but there are plenty of us who fall short of our ambitions.
Don’t stop, keep going
One of the simplest but effective bits of advice you can take heed of, is to start saving as early as possible and keep going for as long as possible.
Even if you start saving small amounts of money when finances are tight and maybe you are trying to balance the books while raising a family, it can accumulate into a tidy sum of money faster than you might think.
An ideal scenario would be to try and put 10% of your monthly income away and once you are in the savings habit, don’t stop putting as much money away towards your retirement, even when you can see the finishing line in sight.
Keep on saving for as long as you can and as much as you can. It will make a big difference to your retirement plans.
Make the most of tax benefits
Everyone likes the concept of getting a bit of free money, and from your point of view, if you sign up to your employer’s retirement savings plan, it can boost your retirement pot with the tax savings available.
Ask about details of what retirement savings plans are available through your employer, such as a 401 (k) for example, as the compound interest and tax deferrals available through a scheme like this, can definitely make a worthwhile difference to the amount you have to retire with when the time comes.
You can’t rely on the state
A worrying amount of people are under the illusion that Social Security will as good as pick up the check for their retirement plans and give them the money that they need to survive in retirement.
The reality is very different to the perception and it needs to be firmly understood that the government does provide a financial safety net of sorts, but it is a very basic one, and if you don’t make any worthwhile provisions of your own and start saving for retirement, the stark reality for many, is that they are going to lead a pretty meager existence when they stop working.
It is never nice to hear bad news or to discover the truth is more unpalatable that you would like, but it is worth heeding the warning and ensuring that you have your own Plan A to work to, rather than the more unfavorable Plan B of relying on Social Security.
Crunching the numbers
Continuing on the theme of realism, you do need to crunch the numbers and work out exactly how much retirement income you will actually need in order to be able to do all the things that you have got planned.
Although your monthly expenses should be lower in retirement, once you have paid off the mortgage for example, but if you want to maintain the lifestyle you currently have, expect to need somewhere in the region of 80% of your pre-retirement income.
A simple calculation would therefore be to take the amount you earn each year at the moment and work out what 80% of that figure is. That number you get is your target annual income figure, which is a good starting point for working out how much you need to save in the time that you have left, to be able to have enough to draw that amount of annual income.
We don’t ever know exactly how long we have left on this planet, which can make retirement planning a bit tricky.
You obviously hope to live a long and happy life, so the best guess to work with if you take the national average, is that you will probably have about 20 years of retirement to enjoy, give or take.
While you might not want to contemplate your eventual demise, it does make planning for your retirement much clearer, if you work on the basis that you will need to accumulate about twenty years of annual income.
Once you have a set of goals and plans in your mind, you can then set about creating a financial plan that allows you to meet these targets and enjoy a comfortable retirement.
Christopher Bryant is a personal finance consultant who works with a wide range of people, from millennials and newlyweds to those approaching retirement.