We've all pictured it: Retiring from your 9-5 to finally take up that hobby, travel to faraway lands or enjoy leisurely days with loved ones. Those dreams could become a reality, but there's one important thing you might consider first: preparing for retirement.
Now, retirement isn't just about numbers. However, reaching your goals requires learning how to plan for retirement — and it's something you might want to consider sooner rather than later. After all, the sooner you start planning, the sooner you could begin to lay the groundwork for your golden years.
Consider Saving Soon
Like most things in life, it might be best to keep it simple and start with the basics. Examining your current spending habits could help you determine where you really spend your money — and might show you what your priorities are. From there, you could decide to make adjustments to your spending habits. This could help make budgeting easier in retirement, as you might not have to make as many lifestyle adjustments when you leave the working world.
Then, you might consider putting together a long-term savings strategy to fund your future retirement. It's fairly simple, really: The longer you have to save, the more money you could put aside for your future. There are many retirement savings approaches — from 401(k)s and 403(b)s to Roth individual retirement accounts and more — and saving early could help you reach your goals sooner, whichever option (or combination of options) you choose.
How Much Might You Need?
Think about the life you picture yourself living in retirement — then consider calculating how much that lifestyle might cost. We all have different goals for our golden years, so it only makes sense that our saving strategies might also be just as different. There are many schools of thought on how much is really enough, so it might be important to consider your own needs and goals before etching a number in stone.
There are many variables you might consider: Are your finances in tip-top shape? Do you have significant debt or expenses that will follow you into retirement? Will you need to make a major purchase in your golden years, such as a home or a car? Do you plan to spend your days traveling to see grandchildren or other places? Some people believe that saving at least 70% of your preretirement income is enough to live comfortably, but you may need more depending on your individual circumstances, according to Georgetown University’s Center for Retirement Initiatives. Consider mapping out your current expenses, your potential future expenses and your life goals to help find a number that suits your individual needs.
What Are Your Options?
Next, think about how you might fund your future: Take into account future sources of income, such as Social Security and private pensions (also known as "defined benefit" plans), as well as your personal savings, including 401(k)s and individual retirement accounts. The Social Security Administration offers a calculator to help estimate potential Social Security benefits. Examining your available resources could also help you determine if you might need to fill the gap with other sources of income. Imagining the adventures you'll have in retirement might help motivate you to start thinking about the steps you could take to secure your future.
Consider calculating how much money you might need to save by the time you retire to provide you with your desired annual retirement income. At retirement, you could begin withdrawing a percentage each year from a balanced retirement portfolio. The percentage could take into account growth in the value of your portfolio, as well as the money you will withdraw. Consider consulting with a financial expert to help you determine your needs based on your lifestyle.
With the right amount of research, self-reflection and professional guidance, you could learn how to plan for retirement with ease. From spending time with your grandchildren and long cross-country vacations to finally taking up woodworking, your retirement dreams could become a reality. You could be golden after some careful planning and saving — after all, they're called your "golden" years for a reason.