If you want to be sure you have financial security in retirement, wishing won’t make it so. You actually have to prepare for it, and that involves developing a savings plan.
But we all know that’s easier said than done. So to help you ensure you’re not singing the blues in your golden years, here are five tips to help you prepare for retirement:
1. Increase Contributions to Your Employer’s Retirement Plan
If your employer offers you matching funds for contributing to your 401(k), 403(b), or other retirement plan, contribute at least as much as you have to in order to get the match – but more is better. Increase your retirement contribution every time you get a raise until you max out your eligible contribution. You should also think about contributing to an IRA if your employee doesn’t offer a retirement plan, or even in addition to your employer’s plan.
2. Add to Your Emergency Fund
You absolutely have to protect your retirement savings from short-term needs. So you should probably think about increasing your emergency fund. It’s a good idea to set aside money in a savings account to cover six months or more of your living expenses in the event you or your spouse lose your job. You should also consider putting money into that account for any major expenses you know you’ll be faced with over the next couple years. For instance, if you know that you’re going to want to redo all the hardwood floors in your home in the next year or two, start saving for that right away.
3. Track What You Spend
Tracking your expenses using personal finance software enables you to see exactly where you’re spending your money. If you look at several months of expenses, you can figure out ways to cut down on luxury items. Then, add the money you save to your rainy day fund – you know, the one that should have enough money to live on for three to six months.
4. Invest Aggressively
The rule of thumb used to be to subtract your age from 100 – and then invest that percentage of your portfolio in stocks. So if you’re 30, then you should keep 70 percent of your portfolio in stocks. The fact is, though, that Americans are living longer than ever, and many financial planners are now advising you to subtract your age from 110 or 120 and invest that percentage in stocks. Granted, there are no guarantees in the stock market and you could suffer a significant short-term loss. The good news is that if you start early enough, you have time to wait for the inevitable rebound.
5. Slash Your Debt
Got student loan debt, medical bills, credit card debt? If your answer is yes, then now’s the time to cut – and ultimately – eliminate that debt. Then you can put that extra money into saving and investing for retirement. Pay down your credit card debt as soon as you can. Additionally, check to see if you can lower the interest rates on your credit cards and student loans.
Need additional help with figuring out how to put these tips into action? Unsure about exactly how much of your portfolio should be in stocks, and what kinds of stocks, at that? (hint: we love ETFs!) A comprehensive financial advisor like FutureAdvisor can help you craft a custom plan geared to your needs and hopes for not just retirement, but the rest of your goals as well.