Retirement planning is a complicated process, especially for people entering their 30’s. This is because so many things need to be considered when planning for your retirement.
- When do you want to retire?
- What will your expenses be in retirement?
- How much do I need to save to afford the lifestyle that I want during my retirement years?
The experts at Jeffrey Small Arbor Financial have some advice for thirty-somethings starting out on their retirement planning journey.
Start saving for retirement as early as possible
It may seem like a daunting task to start saving for retirement when you still have years until you actually retire, but the earlier you start, the more time your money will have to grow. Many financial planners recommend saving at least 10% of your income for retirement. If you can’t afford to put away that much, start with what you can and gradually increase the amount as your income increases. Do not fall into the trap of thinking, “I’ll get around to it soon.”
Retirement accounts should be a part of any retirement plan. Several types of accounts are available for retirement savings, such as 401(k), 403(b), IRA, Roth IRA, and SEP IRA. Each of these accounts has different rules and benefits, so it is important to consult with a financial planner to find the best account for you.
Be realistic about your retirement expenses
It’s important to have a realistic idea of your retirement expenses. Many people assume their expenses will be lower in retirement, but that is not always the case. You still have housing, food, health care, transportation, and taxes in retirement, just as you do when working. If your current expenses are higher than you thought they would be, look for ways to cut back on your monthly bills so that you don’t have a shock when you retire.
Think about when you want to retire
One of the most important decisions you will make when planning for retirement is when you want to retire. Do you want to retire as soon as you reach retirement age, or do you want to continue working for a few more years? The answer to this question will affect your savings and investment decisions. If you want to retire as soon as possible, you may need to start saving 10%+ of your income since the longer you save, the more time your money will have to grow. However, if you plan on working for several more years before retiring, that is a good opportunity to increase your retirement savings percentage.
Plan for inflation
Inflation is a sneaky beast. It may not seem like a big deal now, but it can really add up over time. Inflation can eat away at your retirement savings, so it’s important to plan for it. Many financial planners suggest that you have enough money in your retirement account to cover at least 25 years of expenses, even if you don’t plan to retire for 30 or 40 years. This will help ensure that your money can still buy you the same amount of goods and services in retirement than it does now.