Planning for your retirement is something that can take decades. But it’s also something that can allow you to reap significant rewards when you reach retirement age and have the funds you need to enjoy your desired lifestyle. For many people, retirement is more than just an extended break away from work; it’s another phase in life that involves relaxation, exploration, and getting more involved with family, friends, and society.
Funding your eventual lifestyle in retirement requires significant planning and continuous effort. However, it’s not always a straightforward path, as life often throws curveballs in the form of career changes, unexpected family events, and the need to take care of others while you’re still working. Below, we’ll review the essentials of planning for your retirement and provide tips you can apply to stay on track throughout your career.
Determining Your Financial Goals for Retirement
There are several schools of thought regarding which types of goals make good retirement goals. In most cases, however, one vital element is preparing for the unexpected. Whether you’ll be moving in with family, moving into a retirement community, or remaining in the house where you raised your children, it can be beneficial to plan carefully. Each style of retirement living involves certain guaranteed costs and a variety of possible costs. Therefore, you want to make sure you have enough money put away to cover them.
Fidelity has long advocated that Americans put away 10 times their annual salary by the time they retire. However, as real wages have stayed mostly still with a less than 10% increase since 2000, according to data from the U.S. Bureau of Labor Statistics, it’s entirely possible that you may need to save more than that. The need to account for greater expenses comes into play because real estate and medical expenses generally exceed the average change in prices of other goods in annual measurements.
Due to these anticipated costs, it can be helpful to review your retirement plan and adjust it according to longstanding trends of how these price changes are likely to affect your savings. Further, determine how much you’d like to help family members. And, anticipate several significant, unplanned medical expenses so you can build those costs into your savings.
Making It Work: Adjusting Your Plan Based on Your Career
For many of us, it’s one thing to know how much we’ll need to put away for retirement. But it’s another thing to actually save that much money. Most people face continual expenses throughout their career, and you’re likely to be among them. As a result, one solid plan for funding your retirement can involve saving in ways that generate passive income rather than relying on riskier investments.
While it may be attractive to rely on stocks with the potential for a high return, those stocks also involve significant risks. A balanced portfolio can certainly include stocks with a lot of potential, but it shouldn’t rely solely on those returns. Instead, investments in real estate, bonds, and secure mutual funds can help tackle inflation without risking as much exposure. If possible, maximize your IRA and 401(k) investments, especially if you can secure an employer match.
There are also several strategies that you can employ, depending on your approach to savings. If you know that you’re likely to dip into retirement savings to cover unnecessary expenses while you’re still in the workforce, you may want to look into setting up a trust or annuity that can lock away your savings until the time you need them. Still, there may be emergencies that justify dipping into those savings accounts to prevent significant financial hardship.
If you find yourself removing money from your retirement accounts, track what you’ve taken out. When your financial situation gets better, deliberately replace those funds to the best of your ability, including any lost interest during that time. One of the strongest ways to make your money work for retirement is to take advantage of interest during your working life. As you’re building up your retirement accounts, they should also be building themselves up. With the appropriate investments and diligent effort, you can stay on track to meet your financial retirement goals.
Resource Links
“Housing Prices, HPI vs. CPI” via Banking Strategist
“Employed Full Time: Median Usual Weekly Real Earnings: Wage and Salary Workers: 16 Years and Over” via FRED
“How Much Do I Need to Retire?” via Fidelity
“How Does Medical Inflation Compare to Inflation in the Rest of the Economy?” via Health System Tracker.org