Be prepared for retirement
Retirement means different things to different people – the opportunity to travel, have time to indulge in a favorite pastime, simply get out of the rat race to uncertainty about what it will involve. Whatever your retirement objective, one thing is certain – you’ll need money in retirement.
How prepared are Americans for retirement? What is the current position?
Much has been written about how unprepared Americans are for retirement and terrifying statistics have been mentioned. While different age groups show different pictures, the common theme is that many people of all age groups are financially unprepared for retirement. This is particularly important as people live longer and are healthier, which means they’ll need money for twenty years or longer.
What actions should individuals take about their retirement?
First they should take a realistic look at their situation. However dire it is, doing something about it is better than refusing to face reality.
- When do you plan to retire? As early as possible; work until 65, or longer if you are able to?
- What do you intend doing once you’re not working fulltime anymore? Downscale but maintain your present lifestyle? Relocate to another state, city or country? Keep busy with some part-time work?
- How much money will you need? This is THE important question. It’s one you should look at, even get professional assistance to do it. Without knowing what your aim is, it’s difficult to be motivated and stick to your plan.
How to go forward
It’s never too early to start making provision for retirement, or too late to do something positive about it. So what do you do if you’re in your forties or fifties, have no adequate saving and investment strategies in place and realize your retirement provision is insufficient?
Do something about it; anything is better than continuing to live with this fear of becoming destitute at some stage. Start by going through the three steps mentioned above and make some firm decisions. As you go forward, it’s important to regularly take stock of your position. Changes in your circumstances, the markets and regulations may mean some adjustments are needed.
Practical ways to handle your retirement savings
Everyone’s road is different, but the important thing is to start early and save regularly. A general rule is that you save 10 – 15% of your earnings, including your employer contributions. Growth potential is important and the younger you are the more risk you can tolerate (for instance an exposure to the stock market).
Use what is available to the fullest; your 401(k), as well as other workplace savings plans like IRAs. If needed, supplement these with other retirement plans available, like fixed income annuity (FIA). They pay a minimum guaranteed interest rate over the term of the contract, plus additional interest when the market index to which it is linked increase.
It’s important to stick to a plan, and add to these savings whenever you’re able to. Someone in their forties who need to play catch-up may want to look at their lifestyle. Often money spent on things like weekends away, regularly eating out impulse buying can be added to retirement savings. Tough to do now, but you’ll thank yourself one day!
If you’re in the pre-retirement phase and you’re concerned about not having saved sufficiently, try to keep working as long as possible and delay your social security to 70 if it’s feasible.
Someone who is still relative young and healthy may want to look at ways to keep busy and active while earning some extra money once they’re no longer working full time. Once again it’s almost never too early to start preparing. What are your interests, what are you good at that other people will pay you money for? Educate yourself, stay on top of what is happening; the digital economy makes it possible to work from anywhere if you have a skill other people are prepared to pay for - and earn some extra money.
Think about retirement, talk about it, work out a strategy and get advice. As you get rid of the uncertainty and prepare well, retirement can become one of the best times of your life.
Financial advice to a twenty-something
Remember the financial advice you received when you were in your twenties? Did you listen to it; perhaps even followed it? Probably not. Now, with the benefit of hindsight and experience, what would you tell the twenty-something year old you? What financial experiences have the years taught you?
The starting point is to live within your means; and that means you have a budget that you stick to. It’s impossible to do financial planning without a budget. And without planning, your financial future will be like a rudderless ship that’s at the mercy of the one financial storm after the other.
Take your 401k seriously; you may not realize its importance now, but you will in 40 years’ time. Contribute fully to it; it makes a significant difference over time. Avoid the temptation to use the money for other stuff - that will see it disappearing into a bottomless pit.
Be careful with credit. There is a time and place for credit and it’s an essential part of an individual’s financial life. But, make sure you use credit only in situations where the end justifies the means – for instance to buy big ticket items you really need, to buy a home or expand your business.
Pay attention to the stock market, read widely and carefully, speak to people invested in stocks. Collect all the information you can and then think for yourself. Nobody is as serious about your retirement as you are. In particular, look out for stocks with a strong dividend paying history. They will usually have sound management and will be leaders in their sectors. Start accumulating these dividend stocks as soon as you are able to. They may be expensive, but it’ll be a worthwhile long-term investment.
Invest in real estate – the sooner the better. Don’t listen to people telling you it’s not possible for young people to buy property. Try your utmost to get the money for a first property. Borrow from your parents if possible (it’ll show you’re responsible). Take advantage of first tome home owner schemes. If you can manage it, live in one property and buy another to rent out. You’ll learn along the way how to recognize worthwhile opportunities in real estate.
There has never been a better time than now to start a small business, and it doesn’t have to be a physical business. Technology makes it possible to earn over the internet in various ways. Start a blog – you’ll be surprised how successful one on something seemingly mundane can be. Think what you’re passionate about, what do you enjoy doing? Will people pay you to do it? Use that passion to start a part-time or even full-time career. People are no longer constraint by location, gender, age. Technology makes it easy to do research and make contact with like-minded individuals. You can also develop multiple income streams so that if something goes wrong, you’ll have other income to fall back on. All the information is out there, you just need to be open and recognize the opportunities.
People live longer and are healthier on the whole, make sure you are financially equipped to make the most of the latter years of your life. It’s never too early to start.