Eight tips for planning your retirement

Filling the cracks in your financial plan

Planning financially for retirement may feel overwhelming. For
some, that feeling is what keeps them from really focusing on and
implementing a plan.
Planning financially for retirement may feel overwhelming. For some, that feeling is what keeps them from really focusing on and implementing a plan.

If you haven’t started planning for your retirement – do yourself a favor and make today the day you begin.

Like any significant undertaking, once you start momentum builds and final results can be empowering. Once you dig in you will most likely find it’s fairly easy and immensely rewarding.

1. The earlier the better. Time is definitely one of your greatest allies. A person who begins contributing a modest amount to a retirement plan in their early twenties could end up on par with someone who contributes much more aggressively but does not start until their mid-thirties.

Even if you have to start small, or start later, start now. Whatever amount you can afford to set aside for your future, do it – and let it grow.

If you don’t have the luxury of starting young, don’t beat yourself up about it, just start now – or as Nike says, “Just Do It!” You’ll never again be younger than you are today.

2. Be smart about what you’ll need. Yes, it’s true – the senior discount is alive and well, and the general cost of living may be less for those who have retired.

But don’t forget, there are other costs to consider. Your healthcare costs, for example, may be greater in retirement partly due to raising healthcare costs, and partly because you may not be as healthy as you were in your youth. Additionally, you’ll want to take inflation into account. If you need an example you only need look as far as gas prices over the past two years.

3. Be smart about how long you’ll need it. When Social Security was being developed, in the 1930s, a male retiring in the United States was really only expected to live about 12 years past his date of retirement. However, the average life expectancy of a United States citizen has risen fairly steadily throughout the last fifty years.

More and more, I find myself planning for my clients to live well into their 80s or more. This often creates a need to plan for 20, or even 30 years.

One consideration is to look at how long your parents and their siblings have lived and add on a few years. Life expectancies, much because of healthy lifestyles and modern medicine, continue to lengthen.

4. Take advantage of tax-deferred contributions. When determining how much you can afford to contribute to a retirement account, base your decision on gross income, not net income.

You may decide you can only afford $50 less per paycheck, net. But remember that some contributions, like those to your 401(k) for example, may be made with pre-tax dollars. That means you can afford to contribute a bit more from your gross income and still only “miss” $50 from your net income.

This is an important consideration. This year, with 2 percent decrease in payroll tax withholdings, is a great opportunity to increase your retirement savings without feeling a pinch.

5. Take advantage of matching contributions. If your employer offers a 401(k) match – consider scrimping here and there in order to take maximum advantage of it. It’s a very positive domino effect. The more you contribute, the more you earn in matching contributions (up to the maximum allowable amount).

Think of it this way – if your employer offers a 50 percent match, then for every $100 you don’t contribute, you’re missing out on $50 in “free money”. You’re also missing out on the growth potential of that money as well.

6. Do the math. This might be the most important retirement tip of all. Block off some time to sit down and do some calculations. Consider the different levels of contributions you could make and calculate how far those could take you by the time you reach retirement.

Once you see what you could achieve, you may be more motivated to increase your contributions. If math is not your favorite thing, enlist the help of a financial advisor. (Note, there are a variety of online calculators on my website, www.kristiellington.com, to help with these types of calculations.)

7. Trim the fat. Keep careful track of your spending for one month (if you bank online, you may have access to tools that help you do this). After one full month, sit down and take a careful look at what you spent money on. Did it all make sense? Was some of it frivolous? Any regrets?

Taking a close look at exactly where your money is going is often the best way to discover areas that need improvement, and ways you could adjust your spending habits.

Add up all the money you feel you spent unnecessarily, then add that amount to the contribution math you did previously. How much further might that extra monthly contribution have taken you? A simple indulgence at $10 a week equals to $520 a year, or $5,200 over ten years. Add in investment returns and the numbers continue to grow.

8. Get help. These retirement tips are intended to help you get started down a path toward, potentially, a more successful retirement. But they’re just that – a starting point. While it’s definitely important to educate yourself and understand your finances, seeking the assistance of a financial professional also make sense.

64 percent of Americans have no financial strategy at all. It’s true – no plan to build wealth or keep it. This finding comes from the 2009 National Consumer Survey on Personal Finance conducted by the Certified Financial Planner Board of Standards, Inc. The survey collected data from 1,700+ U.S. residents.

Why don’t more people have a financial plan? After all, Americans of all incomes and savings levels are free to set financial goals.

In the survey, the reasons varied. Some cited the expense of engaging a financial advisor; some said they get along just fine without a financial plan, and others felt their finances weren’t complicated enough to warrant one. Others were hazy about financial services industry qualifications – (40 percent of respondents had no idea that there were professional credentials or designations for financial advisors.)

Defined goals lead to definite plans. If you set financial objectives and plan for them, you vault ahead of most Americans – at least according to the CFP Board’s findings. Of course a written financial plan does not imply or guarantee wealth, nor does it ensure that you will reach your goals.

Yet that financial plan does give you an understanding of the distance between your current financial situation, where you are, and most importantly, where you want to be.