Yes, I am planning my 100th birthday celebration! It is just thirty two and half (32 ½)) years from now. Planning a birthday celebration this far in advance has its problems! First, I do not know I will be alive or where I may be living. Should I plan a lunch at a restaurant or at home?. Maybe a 100th birthday is important, but is it more important than your retirement? Planning your retirement requires a plan!
I thought my hundredth (100th) birthday is special and I need to plan it in advance. Maybe I am going a little overboard, but I like to have some control over my future. After all, it is a very special birthday! I thought I would have a very large party, perhaps take over the entire restaurant. So you are all invited. It will be at De Bakkerswinkel, Amsterdam. It is a vegan restaurant in Amsterdam which is one of my favorite cities. Hold your regrets, just show up!
I plan to retire again in three (3) years. The first time I only planned it nine (9) years in advance. I actually beat my time frame by two (2) years! When I returned to work, I decided I would retire again in twenty-five (25) years. In case you are wondering, I returned to work because my interests changed. I had already accumulated enough money to stay retired, but I realized I wanted to do something different. The next twenty plus (20+) years were filled with a CFO role, consulting and teaching.
Teaching is great way to finish a career! I get to draw on thirty plus (30+) years of experience and bring it into the classroom. Since I trained many people over the years, teaching is a extension of my skills. High school students are very different from employees, but still enjoyable. Teaching business and computer classes is probably easier than English or math .There is no homework or tests! I assigned eighteen (18) to twenty (20) projects and they work at their own pace until they get it right.
Why does this matter? Planning for retirement is a series of tasks, objectives and goals. Not that different from my classes. I created a curriculum for my classes to help my students understand the real world. I think we personalize everything we do because it is hard to eliminate our personalities and experience. Planning for retirement is no different! It is just a long term goal that involves money. Putting money into a savings account and investing it is the short-term task in order to achieve retirement.
Planning for your retirement is as simple as determining a goal! How much do you need in retirement? The next step is starting by contributing to your 401k. How much should you contribute? Ten (10%) or fifteen (15%) percent is a good start when you start you first job after college. Can you start wit less and add to it in a year? Absolutely, but do it. Enrolling in a 401k is the important first step! Generally, most companies have a match for part of your contribution.
Steps to a comfortable Retirement
- Start saving early – Saving is always important! You may be saving for a car when you were a teenager, college education or your first home so you have done it. Retirement is just a long- range goal. Investing $2,000 a year for six (6) years and stop. If you invest early (in your 20’s), time will help you make you rich. Start early, you will never regret it!
- Participate in a retirement plan – You cannot achieve a comfortable retirement without saving and investing. There are a variety of ways to accumulate retirement savings, but a good choice at your first job is a 401k.
- Diversify your investments – Look for a broadly diversified index mutual fund or exchange traded fund (ETF). An ETF is an investment funded traded on stock exchanges much like stocks. A few examples are total stock market index fund, Standard & Poor’s 500 index fund, total bond market index fund and total international stock index fund. These are low cost, diversified tax efficient investments.
- Check your investment allocation – Even if you invest in a broadly diversified mutual fund such as the total stock market index fund, you may want to have some investments in fixed income such as the total bond market index fund or foreign stocks such as total international stock market index fund. Your investment asset allocations reflect your risk tolerance and how many years you have until retirement.
- How much do you need in retirement? – You should have eight (8) times your ending salary. How do you know what your ending salary will be thirty (30) to forty (40) years from now? Another way would be twenty-five (25) times your first year’s expenses. Again, how would you estimate your expenses so far advance? You have to come up with a reasonable estimate because you need a goal.
- Increase your contribution – Increase your contribution every time you get an increase and promotion. If you use a percentage, it will increase anyway. I am also suggesting increasing your percentage. Remember a good start is ten (10%) to fifteen (15%) percent contribution. Fifteen (15%) to twenty (20%) percent is gives you a much better to achieve a comfortable retirement.
- How to save more or avoid problems? – You can always save more, but you should do it early! Time is your partner in investing. Time trumps investing mistakes, bad investment allocation and almost everything else. You can contribute more when you turn fifty (50) years old, but why wait. The best way to contribute more is to keep your other expenses reasonable. If you start with the goal of saving twenty (20%) percent or more your expenses should remain low. Another important part of your expenses is keeping debt low. Avoid consumer debt as much as you can.
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