If you follow today’s headlines, you’ll see stories of inflation, rising cost of living prices, and other concerning financial news. The current economic trends remind us that building a secure future starts now.
Saving for retirement can be intimidating, though. Is it smarter to park your cash in a high-yield savings account, put it into the stock market, or build a side hustle? And when it comes to long-term security, how much should you actually be setting aside to feel financially safe?
This guide explains how to take the first steps toward a solid financial path, regardless of how early or late you are in your retirement planning years.
Step One: Know Your Goals
A secure financial picture will evolve over time, so don’t let detailed goal-setting intimidate you. Right now, you’re taking the first steps to saving, so your goals can be general. You already feel the pull to build a clear and steady road toward retirement This may look like:
- Paying off debt
- Funding an emergency savings account
- Taking out a long-term care insurance policy
- Investing in life insurance
- Starting an investment portfolio
These targets lead you in the direction you want to go, but they’re not plans. That’s where we go in the next step.
Step Two: Create a Plan for Each Goal
The well-known saying, “A goal without a plan is just a wish,” is often credited to the French author Antoine de Saint-Exupéry. His usage referred to life lessons in his book, but it also applies directly to finances. If you have goals to retire securely with your money, you must set plans to achieve them.
Many people attempt to create these plans independently. However, if you’re determined to accomplish financial success with minimal challenges, consider working with a financial advisor. These expert professionals can guide you as you set short- and long-term goals and make suggestions you may not have considered.
Whether you’re working with an advisor or not, it’s time to make small changes to get ahead. Extreme changes are helpful, but rarely sustainable. Instead, you could pay off your lowest credit card balances, then use the monthly payment to put toward eliminating your next debts or building an emergency fund.
If you’re living paycheck to paycheck, work a side hustle a few hours a week (there are plenty out there, depending on your skills), and use that money to hit your targets.
Lay out a step-by-step plan for every financial goal you want to reach. Sketch out milestones to help you recognize whether you’re on track or need to adjust along the way to reaching them.
Step Three: Project Your Ultimate Target
Planning for your current situation is easy enough. You know your monthly bills, the cost of living give-or-take a few dollars, and your short-term financial needs. But projecting how much money retirement will require is another story.
This projection is a tricky calculation. The right wealth management experts know the factors to include as you try to build your retirement portfolio (as explained here by OJM Group). While it’s often a moving target, this number consists of individual elements, such as:
- Your standard of living
- Your pre-retirement income
- Your health and healthcare costs
- The sources of your retirement income
- The investments you’ve chosen
- Taxes
- Your longevity
- Your legacy choices
Setting a goal for your retirement savings plan shouldn’t be an arbitrary number. Research the factors that go into this complex decision, or work with a wealth management professional who can help you.
Step Four: Take Advantage of Free Money
While you’re working through steps one through three, be sure to take advantage of the opportunities you have to keep more of your paycheck in your pocket.
For instance, if you have a retirement savings plan, like a 401(k), with your employer, maximize your contributions. This step lowers your taxes, and, since the company often matches your deposits, you’ll have more money in your retirement account. Do the same thing with your spouse’s retirement plans if possible.
When setting up a savings account, choose a bank or credit union that provides high-yield interest rates. Since the goal is to keep the money in the account unless an emergency arises, you’ll earn a little extra for doing nothing.
Open an IRA (Individual Retirement Account) early for extra tax advantages. Invest up to $6,500 per year ($125/week), which adds up to over $130,000 in 20 years. The tax advantages of an IRA follow you into retirement and can be a beneficial part of your estate planning.
One last baby step into a secure future: invest in a universal or whole life insurance plan. The younger and healthier you are when you take out this policy, the cheaper the monthly premiums remain, even when you’re older and age brings medical issues. Whole life plans act like investment vehicles. After you pay enough premiums, those monthly payments are invested in the market, building cash value for you to access when you need some extra funds (aka “free money”).
Term life insurance policies are cheaper, but they stay an expense rather than an asset. Still, if you can’t afford a whole life policy, term is an important back-up plan in the event something happens to you or a loved one.
Conclusion
Saving for retirement is something we all think about, but not everyone takes the steps to get started. When you’re ready to build a secure future, follow these simple action strategies. You’ll see the benefits long before your Golden Years arrive.
