This is a guest post by Mary Schoenenberg.
If you are in your 30s then it is the ideal time for you to start making regular contributions to your retirement fund and savings, and experts say that these contributions should ideally be around 20% of your monthly income if not more. That might sound like a lot, especially considering how far off retirement might be for you – but time is of the essence. This is just one piece of sage advice you will get if you decide to subscribe to the Retirement Weekly email newsletter from MarketWatch.
Review Your Retirement Plans on a Weekly Basis
That might sound quite radical, but you really to need to start looking at your retirement plans and options as often as you can. You may have heard of the general rule of thumb for saving between 20% and 30% of your current income in order to enjoy a comfortable retirement. Sometimes though, people will leave it far too late and will need to take far more drastic action as they get older. Here’s an example: Bill and Jane didn’t start saving until late in life, and now realize that they need to start saving up to 50% of their current income now, if they want to have a happy retirement – they are in their early 50s. How will they manage to do that? Well, they are going to have to sell their house and reduce all of their current living expenses. Not an ideal scenario I am sure you will agree.
Here’s another example; Linda and Bob. They want to travel the world during their retirement and so have been saving since they were in their 30s with just a little bit more each month in order to be achieving their dreams. Finally, we have Steve. He just wants to retire in Panama City so knows that he can enjoy a comfortable life with a much smaller amount of money needed. Therefore, he is able to make smaller savings as he approaches retirement.
Different Retirement Plans for Different People
So as you can see, there are very different scenarios for everyone so before you decide how much and how you are going to save, you need to consider the kind of retirement that you want to have when you reach that watershed age. Will you have to continue working but end up reducing your hours? Or will you look to simplify your lifestyle? Or perhaps you intend to have an extravagant and luxurious old age?
Whichever strategy you approach you will need to prepare a retirement budget. Write down the expenses you will reduce or eliminate, and also consider what costs will be added or increased. A typical life cycle cost curve starts with a small peak in your 30’s, then drops somewhat in the middle of your life, and then increases again as health problems require more attention as you grow older.
Create a Financial Retirement Projection
You need to ask your financial planner to perform a retirement financial projection. This will tell you if you need to increase your savings in order to achieve your retirement plan and goal. When you are aged between 40 and 50 is when you should save the most and maximize your contributions to your retirement savings accounts. In the United States, once you are over the age of 50, you can also save even more money due to the government tax rulings around the well publicized 401k schemes.
If your fundraising goal seems impossible now, try to increase the percentage of what you save just a little bit every six months until you reach the maximum that you can afford. As a guide you might want to refer to the Institute of Insured Retirement. They have developed a retirement financial pyramid that shows what the ideal way is in order to develop your retirement funds. This is what is involved in a simple format:
- Guaranteed income (social security, pensions, annuities)
- Long-term assets (401, 403 (b), IRAs)
- Insurance (life, health, long term care, Medicare)
- Investments (CDs, bonds, shares, funds)
If there is one thing that we learned from the recent recession, it is that you need to create a flexible financial plan for retirement. The world is not perfect and there are many scenarios that can change the rate of savings and the value of stocks and shares very quickly. Above all, make sure that you review your retirement plans on an almost weekly basis so you can be as prepared as possible.
Author Bio: Mary Schoenenberg writes advice columns for retirement magazines in North America. You can get some very good advice in this email newsletter that is published every week should you need to know more. Click here for a Retirement Weekly Review to find out more.
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