Going to work every day can be a chore. It is a necessary evil, but how many of us long for the day when there is nothing to do other than enjoying retirement? The thing about retirement is that it may not be possible if you don’t have enough money to pay your bills when the time comes.
So how do you make sure you are not in the poor house when it is time to stop working? You employ as many strategies as possible for controlling indebtedness and putting money away. One thing is for certain: enjoying a comfortable retirement does not happen by accident. It comes through careful planning and execution of key retirement strategies.
Strategy #1: Set Reasonable Goals
Setting yourself up for a comfortable retirement starts early in your working years. It starts by setting reasonable goals you can achieve over time. Those goals involve the two fundamental principles of saving and limiting indebtedness. Nail both and you will be in a good position to set yourself up for the kind of retirement you are hoping for.
A great example of a reasonable goal is to save a certain portion of your paycheck in a savings account. No, a savings account alone is unlikely to generate enough interest to allow you to retire comfortably. Rather, a savings account is a good first step in developing healthy financial habits.
The primary reason for having a savings account is to set aside cash for a rainy day. Maybe the car will break down a few months from now. Perhaps your company will downsize and lay you off. Having money in the bank lets you cover your expenses without having to tap into credit.
Remember that you will not be working in retirement. That means you want your monthly bills to be as low as possible. Avoiding indebtedness is one way to keep those bills in check. Carry too much debt into retirement and you may not be able to afford to stop working.
Strategy #2: Borrowing Responsibly
Going into retirement with a ton of debt over your head is a surefire way to worry about money rather than enjoying your retirement. What is the solution? Borrowing responsibly. Simply put, you only borrow when absolutely necessary. And when you do borrow, you work your tail off to pay back what you owe as quickly as possible.
For most of us, borrowing to buy a house is unavoidable. Borrowing responsibly dictates not getting caught on the property ladder. It dictates buying a home and sticking with it until it is paid for. If getting on the property ladder is necessary, it is still best to have mortgage payments completely eliminated within 30 to 40 years.
Borrowing responsibly also includes limiting the use of credit cards. It means avoiding student loans were possible and, where not, minimizing the amount borrowed and the time it takes to repay. The less you borrow over 40 years of working, the more money you can save for retirement.
Strategy #3: Save and Invest
Putting money into a savings account is about having a rainy-day fund. But remember what we said about savings? Contributing regularly to a savings account helps establish healthy financial habits. Once you are comfortable with funding a savings account, start setting aside a little more for retirement.
You can save for retirement through your company retirement plan. In the absence of one, you can put money into individual retirement accounts (IRAs), certificates of deposit, bonds, and other investments. You can even purchase whole life insurance as an investment.
A financial planner is the most qualified person to help you figure out the best way to save and invest. The key here is to not wait. The sooner you can start putting away money for retirement, the more you will have when it actually comes time to retire.
Strategy #4: Practice Frugality
Have you ever heard the phrase, ‘pay me now or pay me later’? It certainly applies to retirement. If you spend every last penny now to maintain a comfortable lifestyle while you work, you will not have any money to maintain a comfortable lifestyle in retirement. But do things the other way around and you’ll be all set when it’s time to stop working.
Enjoying a comfortable retirement might mean you have to enjoy a less comfortable lifestyle now. Is it worth it? That is up to you. If you are comfortable with the idea of saving as much as you possibly can, then go one step further and practice frugality. Be frugal in every possible area, taking every penny you save and setting it aside for retirement.
We Americans can be a lot more frugal in a lot of different areas. Instead of buying new cars every few years, we could buy a new car and drive it until it dies. We could replace our cell phones less frequently. We could spend less money on dining out, entertainment, vacations, Christmas presents, and on and on.
Strategy #5: Temper Your Expectations
The final strategy this post will address has to do with expectations. While the four previous strategies were all about managing indebtedness and saving money for the future, this strategy is about managing your expectations. This could be the most important strategy of all.
Your personal comfort in retirement will be influenced by your state of mind. As such, it is not abnormal to have lofty expectations for retirement and when you are in your 20s only to find yourself disappointed in your 60s. It is hard to envision the future. However, you can temper your expectations by having honest discussions with older relatives and friends you might know. Listen to what they had to say. Learn from them.
Retirement may seem like a long way off. Even if you are just getting your career going, the decades will fly by faster than you realize. Don’t wait to start working on retirement a few years from now. Start working on it today, utilizing the strategies you read in this post.