It’s the start of a new year, so as such, today’s question relates to New Year’s resolutions, but not the ones that you’re probably familiar with. Particularly, getting financially fit in preparation for retirement.
For some of us out there, we need to address some debt. If you have debt, particularly consumer credit card debt, what you want to do is get a sense of that debt, get a handle on it, and start trying to devote as much of your disposable income as possible towards paying it down. You don’t want to be getting close to, or entering retirement, saddled by that debt. You want to be paying off the highest interest rate debt first and sort of working your way through it.
Another aspect is saving for retirement. Many of us work for employers that offer employer-sponsored retirement account, like a 401(k) or a 403(b). Even if your employer does not offer that, there are other options out there, maybe it’s a traditional IRA or a Roth IRA. Setting a goal of saving somewhere in the neighborhood of 10 to 15% of what you make for retirement is a good thing. If you can’t get to that higher level, don’t worry too much. Start at what you can do and incrementally increase that percentage over time. After a number of years you’ll find yourself maybe hitting that threshold of 10 to 15 percent and over time it will add up. If you start at a young age, you’d be surprised by how much you can build up.
Now, for the folks that are getting much closer to retirement, it starts getting to the point where you need to start to formulate a retirement income plan. First part of that is getting a sense of your expenses. The goal of retirement is about making sure you can confidently enter retirement and have enough income coming in to live your lifestyle and do the things that you want to do. Part of that could be a conversation around what you foresee your life being like for you in retirement. What are the things that you want to do? How do you want to spend your time? And ultimately, what is that going to cost? What are your expenses? What is your lifestyle produce in terms of expenses? The most important thing is having enough to keep up with that and getting a sense of other income sources like pension and social security that’ll help you cover those expenses.
It’s also a good time at this point in your life to maybe revisit your allocation. Many of us start out at a young age, or middle age, and we start to put money into a retirement account. We put money into stocks and mutual funds and we take risk with it because we have a long time to go until retirement. Well, what happens as time goes on, lo and behold you find yourself two or three or four years away from retirement and you’re still allocating your retirement savings the same way that you did 20 or 30 years ago. If you’re getting close to retirement it’s a good time to reassess that. The most important thing as you approach retirement and get into it through retirement is getting a reasonable rate of return. Yes, growing what you have reasonably, but at the same time it starts to become much more important to safeguard what you have to a certain degree.
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