It’s easy to set up automatic savings for $200 or $300 a month. Those are nice round, arbitrary numbers to get you started. But do you really know how much you need to save? My guess is you’re not saving enough for retirement.
Eventually you need to do some work and find out exactly what it takes to make your retirement a successful one. The sooner the better. So if you’re really serious, your retirement savings needs to be a priority.
Focus On Saving Enough
Let’s be honest. The financial landscape is littered with general advice. General is good if you want to learn. But if you want to tailor any of it to your needs, you must be willing to do more work. And if you’re hesitant, unsure, afraid of mistakes, or don’t know where to start, sit down with a fee only advisor. Given the option to spend a little money now to know you’re on track or wait 30 years and hope for the best, you’re future self would spend the money any day. The worst that will happen is you find out the truth.
1. Set Your Goals
It’s impossible to plan anything without knowing your goals. The more specific you are the better, because your goals are your destination. Think about it. It’s a lot easier to plan and save for a vacation when you want 5 days in Disney World instead of a family trip. It’s also easier to be realistic once you know what you want and the amount of money involved.
How much income do you want? How much money will you need? Will your mortgage be paid off? Will you live in the same house? When do you want to retire? What’s your plans after you retire? How will you spend your free time? Part time work? Hobbies? Traveling? What will your monthly expenses be? All these things need to be considered and there’s a dollar amount attached to each one. That amount will give you a “retirement number” which you can work backwards into a monthly savings amount.
Of course, it’s hard to know what you want 20 or 30 years out. That doesn’t change the fact that you need to plan. This is where a great financial advisor comes in handy. As you get closer to retirement, that picture will get clearer. Until then, your advisor can help fill in the fuzzy details and keep you focused on the prize. The last thing you want to do is walk into retirement blind.
2. Implement, Review, & Revise
Armed with a plan, you should be packing the money away into your work retirement plan and IRA every year. By the way, if you’re not, you should be, start today!
Every year you should review your retirement goals and plan. Go through your monthly IRA and 401k statements. Make sure you’re saving enough. Make sure the money is being invested correctly (an advisor can help you with this too).
As I said earlier, it’s hard to know what you want 20 or 30 years out. Plans change and yours shouldn’t be set in stone.
Most years, not much will change. But when something does change, revisit the first step, make the adjustments, rework your “retirement numbers”, and break it down to your new monthly savings amount.
3. Stick With It
The key is being consistent. Focus on what you can control – your savings. There will always be obstacles and headaches. The market’s move up and down. Interest rates change. And it all affects your balance sheet.
Our behavior leads us to focus with pinpoint precision on what’s happening now. But you can’t ignore the big picture. Don’t make drastic changes without consulting your retirement plan. It all needs to be viewed with a long-term perspective.
In case none of this sticks or sounds like too much work, instead of focusing on saving a dollar amount each month, switch it to a percentage. Saving 15% or 20% of your income each month will go a lot further in the long run than some arbitrary number pulled out of thin air.