We all can’t “be like Mike” and retire at age 40 like Chicago Bulls star Michael Jordan did in 2001, but that doesn’t mean we can’t begin to plan for retirement and ensure a solid financial future far before our time runs out.
And while retirement strategies may seem unnecessary when you are in your 20s and 30s, the longer you wait, the longer it will take to save up those pennies – especially for women.
While women have made major strides in the business and management arenas, and have seen a 60 percent rise in income over the last few decades, they are still more likely than men to work part time, or to take time off to raise their children. With less time in the workforce, it makes it twice as hard to save enough money to retire at the traditional age of 65.
But just as women continue to become a driving force in today’s American economy, they can also make retirement a reality in their earlier years by using a few quick tricks and investing in financial longevity.
1. Keep it real about who you are – know yourself and create a lifestyle retirement plan:
Having an idea of who you are and what age you would like to retire is the first step towards investing in future finances. Whether you are the frugal type, or spend lavishly on your lifestyle – it makes a big difference. Be realistic and honest about what you enjoy in life and begin to plan for basic day-to-day living expenses like food, clothes and utilities, as well as the additional perks, like an occasional bottle of wine or the weekly trip to the nail salon. If you like to eat out once a week, or you like to travel once a year, take note of that and factor it in. While the average American will receive $1,300 a month from the government in social security benefits after retirement, that’s nowhere near enough to take that yearly trip to Rio or to head out for a weekly bite at your favorite restaurant.
2. Watch your wallet – keep that spending in check:
Spending habits will change over time depending on how successful you are in your career, and what your assets are. But whether you own your own home, or rent a one-bedroom apartment, tracking your spending using a simple worksheet or a computer program like Microsoft Excel, is essential to keep track of what’s coming in and what’s going out. Many retirees are surprised to see how much of their saved income is taken up by basic expenses like rent, food, and utilities, but by creating a budget, you can get a general idea of what you’re spending your money on. Again, your budget will reflect your lifestyle and personal situation so get it down on paper to avoid unwanted spending and a devastating depletion of funds.
3. Company benefits – get to know what your employer is willing to offer:
In 1978, section 401k of the Internal Revenue Code made it possible for employees to deduct pre-tax contributions from their paychecks each month into a retirement savings plan. While most employees take advantage of the basic plan, those that are a financially savvy, often engage in mutual funds involving stocks, bonds, and money market investments as well. Keep in mind that many companies will also match employee contributions, which can double your savings if managed and taken advantage of correctly. Another reason 401k’s are a great way to save, is because of their restrictions. Many employees can’t tap into employer contributions until they have a certain amount of time vested in their company, limiting access to payments and making it unlikely that you will tap into the savings before the time comes.
4. Start another fund to supplement savings:
So what if your job doesn’t offer a 401k? It doesn’t mean you can’t create your own retirement fund – it just means your financial nest egg is in your own hands. For those that are self-employed or work for a business that doesn’t offer benefits, a traditional, Roth, or rollover Individual Retirement Account, also known as an IRA, is the perfect option. By consulting with a financial planner at a local bank or financial institution, the average citizen can receive guidance on how to make weekly, monthly or quarterly contributions to an IRA retirement plan, which will grow over time tax-free. The personalized investment strategy is an easy way to manage a realistic retirement plan and bring your savings to a higher level.
5. Break it down – Target Date Funds:
Target date funds are just what they sound like. They are essentially, one fund that is created based on what year and age a worker wants to retire. For example, a younger worker hoping to retire in 2050 would choose a target-date 2050 fund, while an older worker hoping to retire in 2025 would choose a target-date 2025 fund. Based on the amount of time each person has, they would choose a collective investment scheme, which is made up of multiple investment strategies like stocks and bonds, or cash equivalents. Instead of juggling a number of investments to create a portfolio, target date funds involve a single fund that can help an employee reach their goal.
6. Keep it real about your own financial knowledge:
For those that have a short attention span and a low-tolerance for numbers – it’s okay to think outside the box and seek professional advice. That’s what financial guru’s are here for! By consulting with a stockbroker, a financial advisor or a CPA (certified public accountant), you can get a better handle on your bread. But before you turn over all your personal information, make sure you research the firm in which you will be dealing with, as well as your financial advisor. Talk to friends and family and find out who has been successful with their retirement savings and take advantage of a free consultation. After you find an expert that you trust, allow them to navigate you through the ins and outs of a 30-year retirement plan.
7. Financial success is a decision:
Building a retirement fund won’t happen overnight. It’s the culmination of a series of decisions that are made over time – and if you don’t stick to a clearly defined plan, there’s no way you will reach your financial retirement goals. In the big scheme of things, mapping out a plan is actually the easy part – it’s sticking to what you’ve put down on paper that can be challenging. So before you let the frustration set in, remind yourself that you are taking one step at a time and achieving incremental goals. The process is slow and steady but can bring you a lifetime of security.