Retirement Planning: How to Get There Sooner
You may absolutely enjoy your job, but there will come a time when you will be ready to leave it, perhaps in pursuit of a fresh opportunity or maybe to begin enjoying your retirement. A new job may be easier to attain than retiring, but if you prefer to end your work years in good health and able to do your own thing, your concentrated retirement planning can help you reach your goals sooner.
Start Planning Immediately
The sooner you begin to save for retirement, the more money you will have available when you retire. Interest rates are currently low, but if you invest your money in stocks and bonds, averaging a modest 5 percent growth, your yield can be substantial.
For example, the 25-year-old business person that opens an account today for $1,000 and earns 5 percent per year while contributing $500 per month for 30 years would have earned $422,331 by age 55. At 10 percent, that yield would reach $1,159,499. Keep in mind that your personal contribution was just $180,000 with the miracle of compounding contributing the lion’s share of your yield.
Be Diligent and Wise
No retirement plan can succeed unless you show a commitment to it. That commitment must be ongoing, consistent and monitored regularly. Working with a financial advisor can help you reach your goals, helping you to avoid a nasty surprise when you are ready to leave work.
That diligence includes the following: investing the maximum in your 401(k), 403(b) or other retirement account, establishing a separate Keogh or other IRA account, investing in stocks and bonds, and maintaining a rainy-day bank savings account. Avoid debt except for a home, with your home possibly providing some of the funding you need to pay for your retirement.
Consider Your Salary Percentage
Retirement advisors typically state that retirees should plan to live on 70 to 80 percent of their salary. That means if you earn $80,000 per year, you may be able to get by on $56,000 per year. The reduced amount reflects your lower overhead including funds previously used to pay for your commute to work, business clothes and perhaps maintaining a second car.
Living on $56,000 per year means retirement savings of $4,667 per month. That money may come from your investments, pension or retirement plan and your Social Security. You should also calculate what $56,000 will be worth five, 10 or 20 years out, adjusting your retirement income to stave off the effects of inflation.
About Tapping Your Funds
You won’t be accessing your retirement funds all at once. Instead, you will take out what you need on a regular basis, such as monthly, allowing your investment to continue to work for you.
In the example of the person with more than $1.1 million saved, a four percent withdrawal would mean $44,000 per year withdrawn. For the individual living on $56,000 per year, the $12,000 difference could be made up by the Social Security check alone. Notably, under this modest withdrawal schedule the nearly all the $1.1 million stays in place as the remaining funds continue to earn interest.
There is no “one size fits all” plan to retirement planning. Your goals and your needs will vary. For instance, if you still have children in college when you retire, you will want to continue to provide for their needs until they are independent. Also, if you plan to retire in place and you live in an expensive metropolitan area, you will need to adjust your planning accordingly.
Finally, expect to adjust your spending when retired as your investments earn more money in some years and as your health needs change. You cannot plan for every contingency, but you can provide the funds you need to enjoy a worry-free retirement.
See Also — How to Reach Your Retirement Goals