With the possible exception of a home purchase, retirement saving is the most important financial activity an average investor will take part in between birth and death. In many cases, actually, buying a home is just one part of a larger, overall retirement strategy. Considering the importance of putting money aside for old age, it is tragically inexplicable that many people ignore retirement planning altogether, or perhaps treat it as an afterthought, a minor detail to be addressed by a routine addition to an IRA at tax time each year.
The fact of the matter is that retirement saving, while it does require a strategic approach and a modicum of discipline, is surprisingly uncomplicated in most cases, and can create a fund base that improves an investor’s credit rating and acts as a shield against unforeseen personal disasters of all sorts. Building a healthy retirement account is an essential component of any comprehensive financial plan.
Here are some of the key things that consumers should know about retirement planning:
- According to the U.S. Department of Labor, less than half of all workers have any idea how much money they will need to sustain them in retirement, which lasts, on average, 20 years.
- The average person will require between 65 and 90 percent of their current income in retirement. This sobering thought should cause everyone to sit down and do a bit of financial planning for retirement.
- Save on a regular basis. Whether that means creating an automated savings plan at work or being disciplined enough to make monthly contributions to a fund, setting some money aside regularly is one of the key principles for a comfortable retirement.
- Learn about employer retirement plans and take advantage of them. The majority of public and private employers in the U.S., Europe and Asia offer employer-backed plans to their workers. Some are matching schemes, but most incorporate various forms of leverage that workers can use to their advantage.
- Put as much money as possible into an individual retirement plan or a similar, government-sponsored retirement arrangement. Plans like these were created for the sole purpose of helping people boost retirement savings by delaying taxation. From an accounting point of view, delayed taxation is essentially free money. Those who do not take advantage of this powerful retirement tool are missing a golden opportunity.
- Ask lots of questions about whatever plan you have, whether it’s an employer-sponsored one, and IRA-like account or something you set up for yourself through a bank or brokerage house. There can be a lot of fine print and legalese involved, so be sure to understand the ins and outs of whatever vehicle you use to hold your retirement funds.
- Never touch the money in a retirement fund. Maintaining the sanctity of the account is a key component of the philosophy of retirement planning. Retirement accounts should not be thought of as stashes that can be raided for the purpose of making down payments on houses, paying college expenses for children, or taking a vacation.
- Do as much retirement planning as possible on your own. Once you get the details worked out as to how much you can contribute and when, then consider asking a professional for help if necessary. Keep in mind that many professional planners charge commissions or get a management fee down the road. And always check the credentials of anyone you hire. It’s best if they have at least 10 years of industry experience and hold one of the many certifications available for retirement planners.
- Investors who have a significant amount of debt should try to pay it all off before making substantial retirement fund contributions. Except for a mortgage, get rid of as much debt as possible, especially high-interest credit cards. There is a certain folly associated with depositing money into a retirement fund while you have outstanding credit cards that charge interest in excess of 10 percent.
- Learn the discipline of slow saving and avoid becoming greedy. This is particularly applicable for savers who begin in middle age and feel they have to catch up quickly. The smart thing to do is make regular, comfortable deposits into a retirement account. The goal is to build a healthy retirement nest egg, not to win the lottery.
- Stick with the plan. The first few months of putting a retirement plan together can be quite exciting. One goes over budgets, examines where cuts can be made and what might be left over for a solid retirement fund. After everything is arranged and set up, accounts opened and the first few deposits made, boredom tends to set in. Active investors sometimes become impatient that the money is not growing fast enough, or get nervous about whether it will ever grow to an amount capable of taking care of future needs. Investors are advised to cultivate patience, make regular contributions to the account and to not raid the fund for any purpose. By sticking with the original goal, the account will eventually grow as needed and do its job.
Retirement planning is not rocket science but it does call for a handful of specific decisions and deliberate activities on the part of an investor. For best results, consultation with an attorney or experienced accountant is recommended. Younger people who start planning for retirement while still in their twenties can take advantage of powerful interest leverage. Middle-aged and older folks can still get the job done with careful, disciplined investing.
Retirement planning need not mean severe cuts in personal budgets or drastic changes in lifestyle. When done properly and approached with a sober attitude, it can be an emotionally rewarding activity that requires a small investment of time and capital in exchange for long-term peace of mind and physical comfort.