Preparing for retirement can seem intimidating and stressful, but it doesn’t have to be. By planning for retirement one small piece at a time, you can eliminate the stress many people experience in the months leading up to it. If you are in your 40s and looking for practical, tangible ways to ensure your retirement is secure, it’s time to begin looking at the big picture while also paying attention to the finer details.
The reality of your 40s
When you reach your 40s, something peculiar happens. You understand the importance of saving for retirement – and you’ve probably saved up some money. However, you may also know that your savings are nowhere near where they should be.
You may also neglect to do anything about it. That’s because life happens, bills pile up, kids go off to school, cars break down, and everything that can go wrong does go wrong. While this may be a bit of an exaggeration, it’s probably not far from the truth.
While most people are saving what they can and doing their best to prepare for retirement, it is still important to calculate retirement goals and anticipate how much will be needed to support your standard of living.
How would you describe your retirement savings plan? Are you among the 35 percent of workers between 45 and 54 that have less than $25,000 saved for retirement? Are you part of the statistic that says six out of ten workers have less than $100,000?
Regardless of where you stand, the following tips can help you hone your saving skills and prepare for retirement the smart way.
1. Contribute to your 401(k)
If you are an employee with a 401(k), 403(b) or TSP, work on increasing your contributions until you are either on track for retirement or until you max out your retirement plan.
If you are using a pre-tax 401(k), you can get tax breaks on the contributions up front, sometimes saving a considerable amount of money. If you have access to a Roth 401(k), you could be saving money that will tax-free in retirement, but without the income limitations that Roth IRAs have.
Make sure you know the difference in the types of retirement plans. If you’re not sure what your company offers, contact your HR department or your company’s retirement plan administrator.
If your employer participates in a matching program, do your best to invest any percentage he or she agrees to match (typically up to 4 or 5%). This is the minimum amount you should invest, as you are essentially earning free money.
Calculate how much you will need to be saving to reach your retirement goal, and start moving towards that number. Even if you just make small increases, you will be running a marathon now instead of trying to make a mad dash for the finish line later.
2. Anticipate college expenses
When you have children under the ages of five, ten, or even fifteen, thinking about college may seem a little strange. However, one of the best things you can do for your financial future is to start contributing to a college plan as soon as possible. While retirement savings should take priority, unaccounted education costs can affect financial goals.
As Jane Bennett Clark of Kiplinger notes, fifteen years out, you need to save an average of $345 a month to pay for 75 percent of a public college education. If you wait until five years out, that number jumps to $646 a month. That is nearly double, and can force some people to delay retirement by a year or two.
Again, retirement savings should take priority over college plans. Anticipating how your child’s education may affect your budget, however, can make the path to retirement smoother.
3. Cut expenses
For those living beyond their means, retirement can only become a possibility if you are willing to cut back on expenses and develop a smart, fiscally sound budget that says, “I care about my future financial security.” Whether it’s eating out too much, owning more house than you can afford, or taking lavish vacations, everyone has an area where they can cut back.
Will it be difficult? Certainly. But it’s often necessary to properly save for retirement.
4. Get help
If everything sounds confusing and intimidating, don’t be afraid to ask for help. With the assistance of an experienced fee-only financial planner, you can discover practical ways to save for the future while living your best today.
Whether it’s understanding your 401(k), developing a targeted strategy for your college plan, choosing how to invest, or learning to budget, a fee-only financial planner can guide you through the process.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes everyone – including professionals in their 40s – should have access to financial resources and coaching. For more information on the services offered, contact Katie today.