Did you ever dreamt of your retirement? You might want to enjoy it together with your partner, or you’d love to travel abroad. Either way, retirement requires money – and a planning beforehand. Retirement comes eventually, although it might seems like eternity, but it doesn’t come cheap. In this article we are going to discuss an important question: how much do you need to successfully manage your retirement all the way through? The answer is not one sided and of course dependent on multiple factors. Examples of these factors are: age, life expectancy, other incomes, they way you live etc. In other words: what works for one individual, doesn’t have to work for someone else. Luckily there are certain guidelines that might help you start thinking about how you can retire.
Saving
Saving is, as obvious it might sound, key to a successful retirement. Try to save whenever and whatever is suitable for you. You can find many free or low cost resources that can help you follow a low-risk investing path. A great way to safe for you retirement is to invest in 403(b)& 401(k) saving plans. This is a retirement account that is set up by a tax exempt (403 (B)) or a for profit (401 (k)) employer. The fist one is mostly for nonprofit, scientific, research or university employees. The second one is for employees that contribute to before-tax earnings. It is always wise to seek information; a great way is to talk to an independent robo-advisor that is specialized in saving for retirement.
4% Rule
Another less obvious way to prepare financially for your retirement is the 4% rule. This rule is relatively simple: you add up all your investments and withdraw 4% of that investment during your first year of retirement. Inflation can complicate this equation and the rule is generally made to sustain you for a minimum of 30 years. If you want to retire early, this is something you should keep in mind. Due to inflation, it is nowadays better to prepare for a 5% rule in the future. So start investing early and know that it is good to better be safe than sorry. A possible investment (and safe investment) are ETF’s for example.
X 25
This is a rule that often looks good on paper, but is difficult for a young person who is still working or just started their career. The multiply by 25 rule requires you to think about how much income you’d like to have yearly in retirement. If you know how much this is, multiply this number by 25. The amount of money that comes out, is what you should safe for retirement. This is an easy rule to apply, but you have to keep in mind that inflation needs to be considered as well.
Remember that it is important to make realistic estimates about what kind of expenses you will have in retirement. Ask yourself questions like: how do I want to live? How much is this going to cost? For now, take a closer look at your expenses in different categories and after that, make an estimation of how they will change. Online you can find several calculators to help you find out (roughly) how much you’ll need.
When to Start
The answer to the question: when should you start saving for your retirement is simple. As soon as possible! The sooner you begin, the longer your money has to grow. By compounding (each year’s gains generating their own gains next year) your money has enough time to grow. It can make a huge difference if you start in your 20s or in your 30s.
In case you find yourself running out of time (for example, you’re in your 40s of 50s and you haven’t started yet), there are a few options that you can consider. You can put your money in IRA’s and workplace retirement plans, just make sure that you don’t wait too long and start as soon as you can. If you are arriving late, then it is often better to choose a traditional IRA over a Roth.
In conclusion, the idea is to collect all your financial information and create a good overview of the amount of money you think you will need. See after that whether the picture of retirement life that emerges is acceptable to you. Use calculators and make sure to remain on track by puzzling each year.