It doesn’t matter how young you are, it’s never too early to start planning for retirement. We all know that we’re supposed to save money to allow us to live a good life once we finally stop working, but not everyone knows where to start.
1. Understand Your Time Frame for Retirement
The first thing to note about preparing for retirement is that your plan will be very dependent on your projected timeline for retirement. This is often referred to as your time horizon.
In order to make a solid retirement plan, you need to take inventory of your age, the age at which you’d like to retire or be financially independent, and your projected life expectancy.
With these figures, you should be able to project how much money you will need to put aside to hold you over while you have no income from work. If you are young, say under 25 and your retirement age is projected to be 65 and your life expectancy is 90, then you have 40 years to save up enough money to live for an additional 25 years after retirement.
2. Calculate Your Financial Needs Post-Retirement
Once you have an understanding of your timeline, you can begin calculating how much money you will need in order to meet your financial needs after retirement. To do this you will need to calculate your annual living expenses including food, rent or mortgage payments, utilities, and potential medical expenses. Once you have that number, multiply it by 25. This rule of thumb will help ensure that you save enough for retirement so that you can withdraw 4% each year accounting for inflation without fear of outliving your money.
4. Start Saving and Contributing to a Retirement Account
Now that you have a clear idea of how much money you will need to have put away in order to retire comfortably, you can begin saving money in whichever retirement savings account best suits your goals. Most retirement plans involve investing in a 401K or Roth IRA account but there are plenty of options out there that range from aggressive investment strategies to the more conservative and safe investment options.
5. Hire a Wealth Strategist to Help You Plan for the Future
Working with an experienced wealth strategist is the best way to plan for the future. A knowledgeable financial planner will help you navigate the complex terrain of retirement accounts, investment portfolios, and even tax strategies to help you become financially independent by your target retirement age. To learn more about how a wealth strategist can help you prepare for retirement, drop us a line!