Don’t get stuck without a plan; protect your future, starting now.
By Jenny Hoff,
Financial product advisor, CEO of Brokers International and author of the book Lead, Don’t Manage, Mark Williams, is blunt about the amount of time most people take to plan for retirement.
“Unfortunately, people take more time to plan a two-week vacation than they do to plan their entire financial future,” says Williams.
This isn’t just an eye-catching statement; studies show it’s on the mark. A recent GOBankingRates study shows 64% of Americans aren’t prepared for retirement, and almost half of the population simply doesn’t care. But gone are the days when social security was a safe bet for dependable income in one’s golden years. With higher life expectancies and lower birth rates, we’re quickly getting to the point where there are more going out than coming in, making social security a risk for later in life.
Steps to saving for retirement
“Do something,” says Williams. “Even if it’s just dedicating $50 a month to a retirement fund, you need to pay yourself first.”
Williams says once you’ve set up a dedicated amount to save, you need to tap into free money resources. If your work offers a matching 401(k), then you need to contribute whatever the amount needed to get the max matching funds. Otherwise, it’s like taking a pay cut, as this is a benefit worked into your compensation package. If you don’t have a full-time employer, you can open an IRA for freelancers and put in the maximum allowed every year, so you can save on taxes.
It’s also a good idea to talk to a financial planner. Find a fiduciary, someone legally bound to work in your best interests, to map out a financial plan. Especially if you’re in your 40s or 50s, when you’ll want to take less risk and start looking at different insurance products that can help fund long-term care when you’re older.
Calculating the cost of retirement
When considering retirement, you need to think big. Williams suggests coming up with a lump sum and calculating how much 3-5% of that would be—the rate of interest you may earn if it’s invested. The idea is not to hope to save $500,000 and live off it for 10 years, paying yourself $50,000 a year until it hits zero. You may live an additional 20 years!
Do something.Mark Williams
Even if it’s just dedicating $50 a month to a retirement fund,
you need to pay yourself first.
You should aim for an amount big enough where you could live off the interest alone, without touching the principal amount. For instance, if you save $1 million for retirement (not hard if you start young and put even as little as $100/month into an index fund), 5% of that amount would give you $50,000 per year. Is that enough for you to live on perhaps in 10, 20 or 30 years? That’s what you need to decide based on your current standard of living. Once you have your lump sum in mind, you can work with a planner on how to get there.
Why it matters for women
Everyone should plan for retirement. However, for many women who may take time off work when pregnant or to take care of small children, Williams says it’s especially important to work with a financial planner and make sure there is a retirement fund set up in your name. “The divorce rate is 50%,” he says. “I’ve seen a lot of women, after giving up their careers to care [for their]children, end up holding the bag in a divorce, with fewer job opportunities available since they may not have worked in many years.”
Of course, this applies to any stay-at-home spouse. And it’s something you should talk over now with your partner and a financial planner as a safeguard for both of your futures and peace of mind.