Can you ever save too much? The answer to this question is, of course, different for everyone. So, below are a few tips to help everyone identify and strive towards a better prepared retirement. No matter your age, income, or where you are in the retirement journey – this post is for you!
1. Save early and often
This is easy to say, yet hard to do. You can’t reverse time. Not all of us started out at 20 years old with a 401k account and a mentor to ask what percentage we should save. Most of us, just guessed1. We picked a pie in the sky percentage and that was it. We didn’t think about that number again till years later when someone brought it up and asked. Only then did we learn that maybe we were under saving. For all the youths reading this post, industry experts recommend a 10-15% deferral2. And another idea is when you take a new job, to immediately contribute at that level – because if you don’t see it in your paycheck, you’ll learn to live comfortably without it. Now, you’re saving!
2. Diversify your holdingsWhat does diversify mean? It could be investments, real estate, and/or owning a business. Some of us will do all three, where others will only have an opportunity for 1 or 2. The important thing is to find ways to spread your wealth. As the old saying goes, ‘don’t at have all your eggs in one basket’.
Evaluate your needs. It doesn’t matter if you make $1m per year or $45,000. The important factor is your spending habits. Those that make the most don’t all have the largest bank accounts. Our advice is to do an annual budget. As a family, sit down once per year and talk openly and honestly about finances. Kids are going to grow up and will have to manager their own finances, so why not introduce them early on, so they can learn, ask questions, and grow into financially responsible adults.
Just because it was a good decision 15 years ago, doesn’t mean it still is a good decision today. Benchmark your assets and seek professional help to reevaluate your portfolio. Think of it like this, do you still drive the same car from 15 years ago? Just as automobiles have improved (safety standards, back up cameras, etc.) so have many investment products. Talk to someone who can evaluate your assets, objectively. Plus – it’s usually wise to have a second opinion.
4. Set a goal
The simple act of setting a goal will keep you focused on achieving it. Once you become aware of that goal, it becomes harder and harder to forget. Make a plan, stick to it, and achieve it. Now, just in case you don’t achieve the goal – think about how much farther you’ve come in the process. That could be education, awareness, and/or victory.
For example, a friend of mine had the goal of having $10,000 in her savings account by the time she reached thirty. She carried a small 3x5 yellow notecard, in her purse that tracked her savings account. Every time she made a deposit, she wrote it on the sheet. Then when at the ATM, when she needed cash – she’d look at the two accounts and (even though she wanted to) she didn’t take from savings accounts. Why? Well, she didn’t want to add a negative to her 3x5 Savings Card. That action kept her savings moving forward and focused on her goal.
5. Be kind to yourself
Life is a journey. Yes, we mess up, but we also do great things. Celebrate both.
6. Plan to live longer than expected in retirement
What if you live longer than you expect? How are your life choices today going to affect that? What if you expire before you expect? Is it better to leave this earth with a little extra in the piggy bank? I’m sure your friends and family would appreciate it.
On the flip side, if you under-save and happen to live a longer and healthier life, then wouldn’t you like the resources to enjoy your golden years? You’ve worked hard your whole life, so by putting away a little it today, you’ll have something to live off of later in life.
As a holistic financial retirement plan picture, if you complete a budget, set a goal, evaluate your assets, diversify your holdings, and plan to live for a long healthy life, then your retirement plan goals should be front and center of your internal conversation.
1 Transamerica. The Retirement Readiness of Three Unique Generations: Baby Boomers, Generation X, and Millennials: 15th Annual Transamerica Retirement Survey of Workers. April 2014. https://www.transamericacenter.org/docs/default-source/resources/center-research/tcrs2014_sr_three_unique_generations.pdf
2 CNN Money. Ultimate guide to retirement: How much should I save? http://money.cnn.com/retirement/guide/basics_basics.moneymag/index7.htm