As you get tired of your day job you may think of retirement without wanting to wish your life away. When it comes to retirement you should consider the financial implications of it long before you can tire of a job because you should be thinking about it as soon as you start to earn money.
You might know some local people who have been able to retire early and seem to be enjoying regular holidays. They will only be able to do that if they have made proper plans for retirement and used their money wisely throughout their working life. They will certainly have more than the average fund identified recently amongst the age group over 55 in today’s USA society; $104,000. That is certainly insufficient at a time when people are living longer.
If you want to achieve your ambition of comfortable retirement that some of your neighbors and friends seem to be doing then you have to act:
- Increase your saving. Social Security benefits will merely support your retirement. It cannot remotely fund it. You need to be saving a minimum of 10% of what you are earning and significantly more if you are in middle age and have not even started to make provisions. Compound interest means that money can grow and the earlier you start to give it a chance to do so the better your retirement prospects. If you save just $50 a month as soon as you begin working you will have a figure of over $450,000 at 65 with average growth of 8% when you will only have put just over $50,000 of your money towards it.
- Maximize the money your employer will contribute to your 401(k) by making sure you put the appropriate amount in yourself. There are tax advantages in doing that though they are minimal for the lower paid. If you need tax advice then talk to an expert.
- Consider a proportion of your money invested in high growth products though if there is significant risk be careful especially if retirement is looming and you cannot recover from a setback. If you are investing make sure you keep yourself up to date with your portfolio. Don’t automatically sell because the value of stocks drop; they can come back in time and you have lost nothing until you sell anyway.
- Think about Social Security and when you intend to claim. That can be any time between 62 and 70.
- Plan your life given the opportunity. If you marry early you don’t need to start a family immediately if your finances are not in order. That means things like repaying student loans.
- Avoid spending unnecessarily just to keep up with neighbors and workmates.
- Think about the costs you are likely to face in retirement, especially medical costs and aim to be able to cover them
- Get rid of expensive debt such as credit card balances. A personal loan used to pay off any balances is far cheaper with a much lower interest rate applied than the credit card companies use.
- Aim to build an emergency fund equivalent at least to 3 months of regular expenditure.
If you retire early you may well be lucky enough to live at least 20 more years, sometimes 30. That does not mean you will not have health problems so you need to prepare a budget that covers your present life as well as an estimate of what fund you will need once you are no longer receiving a regular monthly pay check. Ideally you will have a backup plan because the unexpected does happen. After all the recent recession was a dramatic shock for everyone, experts included. You may make mistakes because plans and budgets are not an exact science.
What is certain is that if you do not follow some if not all of the ideas above then your retirement will not be a reward for working hard all your life. The earlier you act the better your prospects because time is an enemy and the amount you will need to set aside if you have yet to make any preparations increases by the week.