As humans, we all fear what we don’t know. That’s why the thought of whether we’ll be financially prepared for our golden years can be worrisome. Many 30-somethings are just now beginning to think about retirement and the possibility that one day working will be optional for them.
There is no denying that many of today’s retiring baby boomers are in a challenging spot financially. According to a 2014 study conducted by Voya Financial, 21 percent of retirees reported having less than $50,000 in total savings, while only one-quarter had a formal financial plan or written budget. The good news for today’s younger generations is that time is on your side.
Here are few simple steps that may allow you to be on strong financial ground down the road.
1. Identify retirement dreams and goals. Although retirement is likely years away for the younger set, think now about your retirement dreams and goals. Maybe you want a beach home in Florida. Maybe you want to sell the house and travel the world. Or perhaps you are content to stay put. If you start the right planning and saving now, your goals are more likely to become reality.
Once you’ve thought about how you want to spend your time in retirement, it’s important to make a plan on how to accomplish these goals. Put something down on paper and take advantage of planning resources available through your employer or retirement plan provider. Take your hobbies, travel dreams and personal interests into account. You won’t know all of the answers now, but that’s OK, because the important part is starting the process.
Many financial advisors recommend withdrawing only 4 to 5 percent a year from your retirement funds to ensure you don’t run out of money. Don’t forget to consider this factor in your planning.
2. Keep a clean financial house. Let’s face it. Thirty-somethings have lots of expenses. Although they presumably live a bit more comfortably than in their 20s, 30-somethings often find additional factors complicate the finances: marriage, children, a mortgage, house maintenance, vacations, etc. Debt can start to pile up if you are not careful.
With the complications, retirement can become an afterthought. A common question you may ask yourself during this time is if you should back off of saving or pay down debt. Smart investors prioritize and put in place a dual strategy to tackle both debt and savings in a smart way. Make paying off high-interest debt a top priority, yet don’t stop contributing to retirement, especially if a workplace plan offers an employer-match program. Don’t forget to keep three to six months in cash reserves as well. Once your financial house is in order, your debt is paid off and emergency reserves are in place, it’s time to ramp up retirement savings to take advantage of the years of compounding ahead of you.
3. Invest systematically to reach retirement goals. In addition to identifying your goals and putting your financial house in order, consider how much you are going to need to make your retirement dreams come true. There are plenty of online calculators to assist in this crucial step. Voya’s MyOrangeMoney tool is one that can help predict future monthly income and track your progress toward that goal.
Once you know your path, make saving for retirement automatic. Allocate a certain percentage or dollar amount of your salary to be automatically taken out of your paycheck or checking account and invested in a retirement savings account. This makes the process painless and easy. You adjust to your new budget, and have the assurance that you are taking care of your retirement readiness.
Although applying these steps may seem daunting at first, remember the longest journey begins with a single step. First, dream and plan. Then, clean up your financial house. Finally, spring into action, making sure you are on track with your expected income in retirement.
Voya Retirement Coach Jacob Gold is a third generation financial advisor with Voya Financial Advisors Inc., a broker-dealer of Voya Financial. He is a published author of “Financial Intelligence; Getting Back to Basics after an Economic Meltdown,” which was published in August 2009. Gold is a certified financial planner practitioner and Series 7, 24 and 66 securities registered.
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