Moving down the list of the Major components of a healthy financial plan, today we land on retirement funding. After establishing a written cash flow plan, paying off our debt, and building our emergency fund we are now ready to discuss how to fund for retirement. If thinking about retirement gives you anxiety because you have not planned, do not worry; you are not alone. A look over some recent statistics is very depressing. 53% of Americans have less than 25K saved for retirement, 43% less than 10K. Of those who have less than 25K, 43% are over the age of 55! Many people who do save have no idea how much they will need to retire. A survey in 2006 found that 44% “guess” how they make their retirement decisions, an Employee Benefit Research Institute (EBRI) survey in 2010 found that 46% have never tried to calculate how much they would need to comfortably retire, and 30% believe they will need less than 250K for retirement. In addition, more and more Americans are losing faith in the social security system and a recent EBRI survey found that many workers are in danger of running out of their retirement savings too soon. The good news is that it is never too late to start to invest and by starting today you will not become one of the statistics above.
One of the reasons many people do not plan for retirement is that they feel that investing is too hard or complicated. Some people do make it complex but it does not have to be. We recommend first writing down your retirement goals on paper. Be specific by giving them a number and a time limit. For example, having $750,000 by the age of 65 is better than retiring when I have enough money. It seems simple, but by writing them down on paper you transfer them from an idea into an actual vision. It is simply being intentional with your money. After establishing your goals you are now ready to contribute. We recommend contributing 15% of your income into retirement, but only after you are on a budget, debt free, and have the emergency funding in place. We then recommend sitting down with an investment professional that will help figure out your risk tolerance, and teach you on certain funds that fit your tolerance, and teach you about diversification. As you start funding month by month you will watch as your balance in the account grows and you get close to your goal!
The key to retirement funding is consistency. By being consistent in your retirement funding you will slowly but steadily grow your nest egg using the power of compound interest. Remember, you are investing for retirement over the long-term, not the short-term. By having your written goal, keeping your investing simple, and being consistent in your contributions, you will be able to stomach drops in the market, will not be affected by quarterly or yearly drops and you will be able to retire with dignity.