If you are concerned about having sufficient financial resources after you retire, read on. We will discuss how to ensure a comfortable life during this phase of life.
Future Expenses: How Much Will You Need?
First and foremost, you ought to estimate how much you will need. Investopedia states, “Many financial advisors boil down this answer to one rule of thumb, at least as a starting point: the 4% sustainable withdrawal rate.” For instance, the site adds that if you have a $1 million nest egg, you could withdraw $40k per year for thirty years.
That said, obviously the more money you have the better. After all, you never know when an emergency might strike forcing you to spend more money unexpectedly (e.g., medical bills).
You ought to compile a list of whatever expenses you anticipate.
Ordinary Expenses
- Housing Expenses
- Everyday Expenses
- Healthcare Expenses
- Transportation Expenses
- Membership Fees
Calculating your expenses in this fashion will also help you vividly envision the lifestyle you are currently working so hard to achieve. For instance, do you intend to travel the world? To wine and dine with your spouse in Paris? Or do you envision a much more modest retirement?
What Types of Retirement Income Are There?
There are a variety of retirement income types.
Retirement Income Types
- Pension
- 401k
- Roth IRA
- Social Security Benefits
- Portfolio Income (e.g., Mutual Funds)
Start Saving Early On
As bestselling author and Certified Financial Planner, Ted D. Snow mentioned in his book Retirement Planning QuickStart Guide, “Retirement planning is “a marathon, not a sprint, and it should begin well in advance of the day you leave work behind you…a practice that should begin when you land your very first job.” (10).
Give Your Money Time to Grow
Starting early, of course, gives your money time to grow. Albert Einstein has attributed with an interesting statement on the matter: “Compound interest is the eighth wonder of the world.”
As you might know, compound interest comes after you reinvest the interest you made off the initial investment and make interest from that interest. It is with methods like this that the wealthy maintain a cumulative advantage, their wealth continuing to compound over time.
Six-Month Emergency Fund
However, when budgeting your money, always remember the wisdom in maintaining a six-month emergency fund. If you are unfamiliar with the concept, as its name suggests, such a fund enables you to live as you currently are for six months with zero income.
Hopefully, such a need never arises, but if a medical emergency or other unexpected life event occurs you will be ready for it.
“If you have an emergency fund with an adequate balance, none of these situations will be devastating, nor will you need to pay with a credit card.
Thus, it’s preferable to have such a fund before you begin heavily investing your money in stocks.
Be Ready for Retirement
So regardless of your age, start planning today. Your future self would thank you if given the opportunity.
Sources:
Ted D. Snow, CFP®, MBA. Retirement Planning QuickStart Guide: The Simplified Beginner’s Guide to Building Wealth, Creating Long-Term Financial Security, and Preparing for Life After Work (QuickStart Guides™ – Finance) (p. 10). ClydeBank Media LLC. Kindle Edition.
Ursu, Brian M. Now What?: A Practical Guide to Figuring Out Your Financial Future (p. 21). River Grove Books. Kindle Edition.