Do you have grand plans to spend your golden years lying on a beach, hitting the links on weekdays, or sipping cocktails until the sun goes down? By following a few simple tips you can retire on your own terms — on time, or even earlier — and live the good life.
Take a Financial Selfie
You may be opposed to taking real selfies, but it’s never a bad idea to self-reflect and take a mental snapshot of your finances, no matter how young or old you are.
“The first step to creating a solid financial plan is making sure you understand where you’re at,” says Patty Cathey, an investment advisor in Denver, Colorado. “Start by looking at all the debt you owe such as student loans, car loans, credit card payments. Then create a list to keep track of your balances, interest rates and payment due dates to make sure you’re not racking up any unnecessary fees. Next, look at all your other expenses: utility payments, cell phone bills, groceries and entertainment. Then compare that against how much you make. If your expenses outweigh your income, you’re going to have to take a hard look at where you can cut.”
Modify Your Plan
If your financial selfie reveals areas that need improvement, modify your current retirement plan to accommodate those changes.
“Revisit and review the plan for any updates, and evaluate assets and debts,” suggests Kevin Gallegos, a vice president with Freedom Financial Network. “Check an online retirement calculator to determine how much savings you’ll need during retirement. Compare where you are with where you need to be.”
Update Your Goals
Your priorities and your finances will change over the years — so you’ll need to adapt.
“Set a goal for where you want to be this time next year,” Cathey advises. “Do you want to wipe out your credit card debt, bring your lunch three times a week, or increase your retirement savings to 10%? Whatever it is, write it down and put it where you’ll see it every day to increase your motivation and the likelihood of reaching that goal.”
Bring Your Lunch
Speaking of lunch, brown bagging it instead of eating out may seem like a generic and obvious way to save, but the return is probably much larger than you think.
“If you pack your lunch three times a week and invest your savings, you can save more than $9000 in seven years, if averaging a 5% return. You can also save by cutting down on things like coffee, drinks and movies.”
Meet Your Match
One of the most critical ways to accelerate your retirement savings is to take full advantage of your employer’s 401(k) match program, if they offer one.
“Ideally, you want to be putting away 10% to 15% of your income for retirement,” says Cathey. “If you’re working on other goals, like paying off student loans or saving for a new home or kids’ college, then start by putting enough in your 401(k) to meet your employer’s match. That’s free money!”
Plan Your Lifestyle
Will you work part-time, travel, or pursue a hobby? Create your retirement budget. Then try living on what you anticipate your post-retirement income will be. A good rule of thumb is 85% of current income. Save the rest of your income, or use it to pay off debt.
Understand Your Future Income
You only get a partial picture of your financial future if you’re basing it on your self-established retirement fund. However, you may be entitled to other payments like Social Security and pensions that will help out in the long run.
You can get an updated estimate of your Social Security income here, and check with your employer’s human resources department to be sure you clearly understand your pension. In addition, review all your investments, including former employers’ pensions.
Evaluate Life Insurance Needs
If you’re paying premiums on a large life insurance policy, but are no longer supporting dependents, judge whether you should redirect those payments to another source.
Payoff Debt
When should you pay off your debt? As soon as possible.
“Paying off a credit card balance with a 15% annual interest rate is equivalent to earning a 15% return on an investment,” Gallegos says. “Plus, you will provide yourself breathing room on a fixed income. If you really can’t pay it off yourself, either by the avalanche or snowball method, then consider debt negotiation or credit counseling.”
Build a Financial Cushion
After you start doing putting the pieces of your retirement together in earnest, you should have a good idea of how much money you’ll need to survive — and, hopefully, thrive. Individuals age 50 and older can make “catch-up” payments, which allow for greater annual contributions. And don’t forget about your safety net.
“Build an emergency fund of six — and ideally 12 — months’ expenses in an accessible account,” says Gallegos.
Photo Credit: Inalaf
Of all the tips I find Plan Your Lifestyle preeminent. Cliches can be true. To have success, you must retire TO something not FROM your job. Leisure can be overrated.
Totally agree, Timothy. There is only so much golfing/fishing/traveling a person can do before boredom starts to set in.
Speaking of retirement, I have a blog post on annuities for anyone who wants to learn a little more about them and how they might or might not fit into their retirement plans. I hope one day it will be as popular as yours, Len!
Our retirement plan was to be frugal throughout life. Started when we were early 20’s and built our first home ourselves, borrowing only $10,000 to go with our savings. Next (and current) home we built for cash with the proceeds of the sale of the first house.
Not having had a home mortgage since 1982 (paid off the first one) allows you to do a lot in the way of other things….like pay cash for vehicles when needed (new truck in 1987, another, and current one in 2003….cars we buy new and drive for 10-15 years….current Subaru Outback is a 2011).
For post retirement income, we went 2 routes. Wife worked at a local school system for 33yrs, worked her way up the salary ladder with experience and degrees, and got a decent pension that we could live on alone. Her social security is about twice mine, as much of my working years were spent on homestead improvements and income from rental properties not subject to SS tax…..but the SS checks are merely gravy anyway…..we tend to save most of that income.
My route was a self employed carpenter/jack-of-many-trades, and I built a lot of infrastructure on our place that keeps us from having bills…..things like solar power (no power bill for the last 12 years), our own water source, private septic system, a tower on our mountain top we rent to the internet company (and get our high speed service free) etc. We have very few monthly bills to contend with in retirement. The other part was I build single family rental homes when not otherwise employed in work for other people. We sold those off prior to retirement (built for cash as we went, no mortgages on them), invested the cash we’d put in + my sweat equity, and have a real nice cushion of cash and precious metals we’ve never had to touch.
For retirement, we work around the homestead, raising most of our own food. Breakfast this morning, for example, was eggs, sausage, home fries and stewed apples….all products of here. Cup of hot tea with milk/sugar did come from town supplies ! We spend much of our time leisurely working on the place, or take day trips to sight see or bike ride local trails. It’s a great retirement, I highly recommend it !