Going to college, joining the workforce, getting married, and having a family are all major life transitions. They are also transitions that you prepare for before they occur. Retirement, perhaps the last transition of adulthood, also needs to be a transition that we plan and prepare for. How you prepare for retirement depends somewhat on how you envision the kind of retirement you want. Will you work part-time, volunteer, travel? Depending on your vision of retirement, you will need to develop a realistic picture of the financial resources you may need. Investing should be a lifelong process, saving and investing as soon as you start earning money. However, no matter how old you are when you start thinking seriously about saving and investing, it’s never too late to begin. Learn how to prepare for retirement at each stage of your life with these tips.
How Much Do You Need To Retire?
How much should you be saving for retirement, by age? An easy question to ask, but a difficult question to answer. One line of thinking is that you will need about 12 times your pre-tax salary to retire. But that formula doesn’t work for everyone. Another rule of thumb says you can calculate your expected net worth, or how much you should save, by taking your age, multiplied by your pre-tax income, and dividing by 10. If you are 50 years old and making $60,000 a year, that would work out to an expected net worth of $300,000. A final method of calculating what you will need for retirement requires defining financial wealth in years rather than dollars. For this equation, you would divide your net worth by your annual expenditures above Social Security. Here, if you had a net worth of $200,000 and needed $10,000 a year above your Social Security checks to live on, you have 20 years of financial wealth. If you think you’ll live to be 90, you could be financially independent at 70.
By basing your savings’ goal on what you spend rather than what you make, getting on track for retirement requires taking a good look at your expenditures to see what you can reduce. You can also set goals for how much you are saving as you approach retirement. At the age of 40, you can have a goal to have 9 years of financial wealth saved. At age 50, increase your goal to 18 years of financial wealth. At age 60, you will hopefully have 27 years of financial wealth saved. And finally, at age 65, you should have a goal to have 30 years of financial wealth. Make sure you talk to a trusted insurance professional about your retirement plans to find out exactly how much you need to retire.
During the working years, retirement can seem like an event far off in the distance. But if you think back to elementary school, college also likely felt like it was far into the future. Yet, in a blink, those school years passed, and you were heading off into a new phase of life. It can be hard to think about retirement in your 40’s when it’s still 20 or 30 years away, and you’re trying to stay on top of day-to-day concerns, but that transition is coming.
Life planning is an important key to a successful retirement, and workers who have given serious time and thought to prepare for retirement will find the transition smoother. If you are worried about having enough to retire, consider yourself lucky. Those who are confident about having enough to retire frequently start spending more than they should and begin losing their retirement savings. On the other hand, worrying causes people to save. You don’t want to worry too much, but being concerned about your retirement is a good sign that you are on the right track.
The earlier you begin saving, the sooner your money can begin working for you. The right advisor can help you reach your long-term financial and retirement goals. Contact Coverage Made for help finding a trusted insurance professional.