When you’re juggling work, family, and everything else, chances are pretty good you’re more focused on trying to win the day, than plan your future.
You might think you’re too busy or it’s too early to plan for your golden years. Here’s the thing…even if you’re years away from retirement, now is always the best time to create a financial plan to make it happen.
Check out these five practical tips to help you prepare for retirement
1. Start saving early & consistently
The cornerstone of any retirement plan is consistent saving. The earlier you start, the more time your money has to grow.
Financial experts recommend saving 10% to 15% of your annual income for retirement.(1)
But instead of putting that money under your mattress, you’ll earn more from saving by tapping into the power of compound interest.
For example:
- If you save $500 a month starting at age 25, with an average annual return of 7%, you could have over $1 million by age 65.
- If your employer offers a 401(k) match, contribute enough to take full advantage of this benefit. It’s essentially free money added to your retirement savings.
2. Create a retirement budget
What do you want your retirement years to look like?
That’s a good place to start. Answer the question and estimate your future expenses for things like:
- Housing
- Travel
- Healthcare
- Hobbies
- Daily living expenses
The average annual spending for people aged 65 and older is about $50,220, according to the U.S. Bureau of Labor Statistics.(2)
Creating a detailed budget will help you determine how much you need to save and guide your financial decisions.
Once you create a plan, you may need to adjust your current spending and saving habits to meet your retirement goals.
3. Diversify your investments
When people say “diversify your investments,” they mean spreading your money across different types of investments instead of putting it all in one place.
Here’s an easy way to understand what this means:
- If you love pizza, you wouldn’t want to eat just cheese pizza every day, right?
- Sometimes you want a little pepperoni, maybe some veggies, or even a completely different dish like sushi or tacos.
The same idea applies to your investments.
- By putting your money into a mix of stocks, bonds, real estate, and maybe even some other things, you’re not betting everything on one option.
This way, if one type of investment doesn’t do so well, you’ve got others that might be doing better, which helps balance things out and keeps your money safer in the long run.
How should you divide up your investments?
Financial advisors often recommend a traditional mix of investments that looks like this:(3)
This diversification mix has historically provided positive returns with less risk. But it’s not the only way to diversify your investments.
Each type of investment carries different risks and rewards, and a balanced portfolio can provide more stability and growth potential.
4. Pay off debts
Entering retirement debt-free can significantly reduce your financial stress.
According to the Experian, the average American household carries around $6,501 in credit card debt.(4)
Focus on paying off high-interest debts, such as credit cards, medical bills and personal loans, as soon as possible.
Mortgage payments and other long-term debts (like student loans) should also be addressed, with a goal of reducing or eliminating them before retirement.
Being debt-free allows you to maximize your retirement income and enjoy your golden years without financial burdens.
5. Plan for healthcare costs
Healthcare is one of the most significant expenses in retirement.
If you and your partner retire at 65 this year, you’ll need about $315,000 to cover your medical expenses for the next 20+ years.(5)
Putting some of your money for medical care in a Health Savings Accounts can help you pay for medical care and offers tax advantages.
In addition, long-term care insurance can help cover costs that Medicare doesn’t, such as assisted living or nursing home care.
Start saving to enjoy your golden years
Securing a comfortable retirement requires careful planning and disciplined saving. By starting early, creating a budget, diversifying your investments, paying off debts, and planning for healthcare costs, you can build a solid foundation for your future.
It’s never too late to start, but the sooner you take action, the better prepared you’ll be to enjoy your golden years with peace of mind.