In all my years as a financial coach, I’ve worked with folks who made serious mistakes with their money and their retirement. I can still hear the regret in their voices as they realized how much trouble they were in.
I’ve also worked with many others who were winning big-time with their money, setting themselves up for the retirement they’ve always wanted.
You know what the difference between them was? The ones who were on track to reach their retirement goals had a plan. They were intentional, they were focused, and they took the time to really think about what kind of future they wanted. And then they started working their plan with “Eye of the Tiger” intensity—they didn’t let anything get in their way!
Do you have a retirement plan in place? Listen to me, retirement planning isn’t an “old people” thing. It’s a smart people thing. And it’s never too early to start planning for your retirement future. Let’s do this!
What Is Retirement Planning?
Retirement planning is the process of figuring out how much money you’ll need to save for retirement and then putting a plan in place to get there. Retirement isn't an age—it's a financial number!
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Here are a few questions I want you to ask yourself as you start planning for your retirement:
- What do I want to do in retirement?
- When do I want to retire?
- How much money will I need to save by the time I retire?
- How much will I need to invest every month to hit my retirement goals?
- Which retirement accounts should I use?
- What should I be investing in within my retirement accounts?
- What about medical expenses and long-term care in retirement?
Why is a retirement plan so important? Because it gives you a clear path to success. It inspires you to take action. So take some time to sit down with your spouse, maybe meet with a qualified investment professional, and start answering these questions. The sooner you start planning for retirement, the faster you’ll be able to make progress.
How to Plan for Retirement in 4 Steps
Are you out of debt and have a fully funded emergency fund in place? If that’s you, I’m proud of you! That means you’re ready to start investing and saving for retirement. But even if you’re currently working your way out of debt or piling up cash, I still want you thinking about retirement—this is what you’re working toward, after all.
A lot of folks tell me they’re intimidated just thinking about planning for retirement. They just don’t know where to start. If that’s you, take a breath! Here are four simple steps you can take to help you start planning for retirement:
Step 1: Set Your Retirement Goals
What is your retirement dream? Do you want to ride around the country in an RV? Buy a house on a lake and go fishing every day? Spend a bunch of time with your grandkids?
Whatever your dreams and goals are, having a high-definition picture in your head of what you want your retirement to look like will keep you motivated when you might feel like taking your foot off the gas.
It’ll also give you a starting point for retirement planning and help you answer some important questions, like how much money you’ll need by the time you retire and how close you are to making your dream retirement a reality.
About half (48%) of workers have actually tried to figure out how much money they’ll need to save by the time they retire.1 That’s not good enough! My Retire Inspired Quotient (R:IQ) tool can help you find out how much you’ll need to save for your dream retirement.
Step 2: Save 15% of Your Income
I want you to invest 15% of your gross income in good growth stock mutual funds through tax-advantaged retirement savings plans like your employer’s 401(k) and a Roth IRA. I love Roth IRAs because the money you invest in them grows tax-free and you won’t be taxed when you take out money in retirement.
Your goal is to consistently invest for retirement as you focus on other financial obligations, such as funding college for your kids and buying or paying off your home. With an empty nest and a paid-for home, you can plan to ramp up your retirement savings later if you need to.
A couple with a household income of $56,000 could have around $1.1 million for retirement if they invest 15% of their income for 25 years. In 30 years, they could have $1.9 million—and that’s assuming they never got another raise during their working lifetimes.
Ideally, you should be able to live off the growth of your retirement savings rather than dipping into your nest egg. An investing advisor can run projections based on your monthly contributions and expected retirement age, making sure to account for inflation and any taxes or fees that may apply down the road.
In my new book, Everyday Millionaires, you’ll learn how ordinary people just like you became millionaires by following these steps. You can do this!
Step 3: Invest for the Long Term
Fear, anxiety and impulsiveness—those are the three biggest enemies you’ll face while trying to invest and plan for retirement. Not only will they cause you to panic and make dumb decisions—like pulling all your money out of your 401(k) when the stock market has a bad day—but they’ll also keep you from investing all together.
To build wealth and invest with success, you need patience—lots and lots of patience. Slow and steady wins the race every time. There are no shortcuts, people!
Remember, investing is a marathon, not a sprint. And it’s not for the faint of heart. The stock market is a roller coaster that’s going to go up and down, but you’ve got to be strong enough to stay on the ride through all the twists and turns that pop up.
Keep in mind that as you approach age 60, you’ll want to purchase long-term care (LTC) insurance. LTC insurance will protect the money you’ve saved for retirement by helping to pay for a nursing home or in-home care if you need it. So, make sure to factor in LTC insurance as you estimate your retirement budget. It’s a necessity! Also, until you’re self-insured, term life insurance needs to be part of your plan to cover those who depend on you.
Step 4: Work With a Financial Advisor or Investment Professional
Investing isn’t a solo sport. You need someone who can help create a retirement investing plan that fits with your life and your goals—and that means working with a financial advisor or investment professional you can trust.
When we completed the largest survey of millionaires ever done, we found that they didn’t achieve their net worth on their own—68% of them used an advisor to help them get there. Retirement planning is too important to figure out on your own!
In fact, studies have shown that investors who work with a financial advisor receive an average increase of 1–3% in the value of their portfolios each year over those who don’t.2,3 That might not seem like a lot at first, but those numbers add up after decades of consistently investing into your retirement account.
If you invested $200 a month toward retirement from age 30 to 70, a 2% difference in your annual rate of return could cost you anywhere from $500,000 to almost $1 million in your nest egg. Ouch.
Your dreams and goals are too important to chase on your own. Get an investment professional in your corner to help you along the way! A SmartVestor Pro can work with you to create a retirement plan for your specific situation and help you understand all your investment options.