Sometimes it’s fun to sit back and dream about retirement with rose-colored glasses. Traveling the country with your partner. Maybe including your dog and an RV for an extended camping trip to new places.
Perhaps you plan on spoiling imaginary grandchildren on every birthday. Actually, who needs an occasion!
Spending lots of time at the beach. Finally perfecting that backswing you’ve been working on for years. Spending some time at a charity to give back.
While it can be fun to dream, it is equally important to remember that it takes thoughtful financial planning to actually achieve your ideal future, whatever that may be.
Why Taking Time to Plan is Crucial: A Case Study
Take a client for example, we will call her Sandy to protect her privacy. Sandy dreamed of an early retirement and worked incredibly hard to make it happen. She moved up in her career and saved more in her retirement plan each time she got a raise.
Sandy did a lot of things right. What she didn’t do, however, was have a long-term financial plan that accounted for her early retirement, health care, taxes, asset allocation, spending, and more!
Winging it might be okay when it comes to deciding where to go for dinner, but when it comes to your financial future,–as Sandy realized, there’s a lot more at stake!
The truth of the matter is, taking the time to deeply consider your retirement goals and plan for them isn’t always top of mind, but taking a mindful approach to your future is critical.
What Does Retirement Look Like To You?
Ask around or do a quick search and you’ll discover a plethora of benchmarks and “rules-of-thumb” to aid you in determining how much you really need to set aside for retirement. Our friend Sandy followed many of these surface-level strategies and it made sense to her at the time.
There are guides for what you should have saved by a certain age and for how much you should save each year. At the end of the day, however, nothing about retirement planning is one-size-fits-all.
As you’re considering how much you need to save for retirement, it’s time to start thinking about what you expect your expenses to be. Here are some questions to ask yourself:
- What does retirement look like for you?
- Will you downsize from a family home to an apartment or condo?
- Will you travel often or stay close to home?
Your answers can help you begin to estimate the amount you’ll need to save in order to meet your retirement goals.
So Exactly How Much Should I Be Setting Aside?
Finances are deeply personal, and retirement planning is no exception. The general rule of thumb for how much you should set aside is about 80% of your pre-retirement income.
While this is a good place to start when creating a plan, you’ll also want to consider other factors like your desired retirement lifestyle, whether you’ll continue to work part-time, possible unforeseen circumstances such as medical conditions, and even the effects of inflation!
Planning For a Robust Financial Future
It seems to be common sense that having a financial plan is important, but following through on that plan isn’t easy. According to a Cato Institute study from 2019, around 59% of Americans think it’s important to “plan for the future and give up things now if necessary,” but most fall short of actually building wealth that will sustain them through their retirement years.
You might be thinking, “But I do have a retirement plan in place—I contribute to my 401(k)!”
When you plan for your financial future, a 401(k) is a fantastic place to start. However, there is a lot more to the picture than simply putting 10 or 15% of your earnings into your 401(k) every year. Below are 4 important things to consider.
1. Income Generation
Simply saving money is not the best way to increase wealth; finding ways to make your money work for you is essential to not only surviving, but thriving financially. When making retirement plans, consider other sources of income such as:
- Expected Social Security benefits
- Real estate/investment properties
- Dividend-paying stocks
2. Market Fluctuations
Market fluctuations are bound to happen, and it’s important to think about this when including investing in your financial plans. The amount of risk you take with your investments, including your 401(k), will need to change as you get closer to retirement.
Figuring out the best way to do this can be daunting. A financial professional can help you choose how aggressive your investment strategy should be based on your age, income, and retirement goals.
3. Inflation
Chances are, even with a steady income, you’ve noticed the pinch of inflation in recent years. Everything from bread to real estate has increased in cost, which erodes the purchasing power of your money.
It’s essential to consider the effect of inflation and to choose investments that will outpace and offset its effects.
4. Lifestyle Factors
Just like everything in life, building wealth is a balancing act. To do it wisely, you need to manage expenses and make informed financial decisions.
Overspending can set you back and large debts can feel crushing, but a healthy amount of financial discipline and oversight will help combat frustration and be critical to your success as you work toward your goals.
Conclusion
Financial security in retirement can sometimes feel like a dream, but rest assured, it is entirely attainable. However, it is not something that will happen without careful and thorough planning.
Building wealth to achieve your retirement dreams is a detailed process with many challenges, but with the right mindset and a little expert insight, the process can be truly rewarding.
Consider consulting with a professional who can help you weed through all of the options, questions, and solutions that will work best for you and your retirement goals.
The expert and compassionate team at Better Money Decisions can help you navigate the retirement planning journey while keeping your individual goals in mind.
Whether you plan to retire next week or in 40 years, a comprehensive financial plan is no longer an optional choice – it’s essential. The sooner you get started the more likely you are to achieve financial security in retirement. We are here to help!
