Retirement - how do you get there?!

[PierreBear]

Retirement is at least 20 plus years away but I find myself always wondering how people know how much to save and how do you know $X amount is enough? Other than going to a financial adviser and paying a fee, any general guidance other than perhaps anticipating your monthly expenses? Life seems so unpredictable and it still seems scary to rely on investment income, pension, social security etc... but of course life is so unpredictable but who wants to work until they are old and be unable to travel or enjoy the fruits of your labor. Any thoughts? Any general financial tips?

 

[sonnyjane]

Retirement is at least 20 plus years away but I find myself always wondering how people know how much to save and how do you know $X amount is enough? Other than going to a financial adviser and paying a fee, any general guidance other than perhaps anticipating your monthly expenses? Life seems so unpredictable and it still seems scary to rely on investment income, pension, social security etc... but of course life is so unpredictable but who wants to work until they are old and be unable to travel or enjoy the fruits of your labor. Any thoughts? Any general financial tips?

Honestly? Save as much as possible - As much as freaking possible. I have a pretty complicated budget spreadsheet that I check in on basically everyday. It's broken down by paycheck for the year. Each paycheck I can see what bills I have to pay and what's leftover. Of the "leftover", I put 25% into cash savings, 25% into "couples fun" (for date nights, trips, etc.), 25% into "solo fun" (for solo travel, clothing, etc.), and 25% into retirement. Sometimes I have more leftover than others, depending on the bills, but I try to make sure that I "steal" that money from myself right away. When my car is paid off in 2 years, I plan to put that $458 into my IRA each month (that's the annual cap) to catch up for my current short-comings.

I don't MAKE very much so I don't have a huge retirement account, but I know I'm in a better position than many my age (32). True, I could get rid of the travel/fun accounts and put everything into retirement, but just like with food, I think you have to allow yourself some indulgences or else you'll go crazy. The nice thing about the "fun" accounts is that I can pay for trips or splurge items with cash, so no credit card debt.

 

[Calliecake]

Retirement is at least 20 plus years away but I find myself always wondering how people know how much to save and how do you know $X amount is enough? Other than going to a financial adviser and paying a fee, any general guidance other than perhaps anticipating your monthly expenses? Life seems so unpredictable and it still seems scary to rely on investment income, pension, social security etc... but of course life is so unpredictable but who wants to work until they are old and be unable to travel or enjoy the fruits of your labor. Any thoughts? Any general financial tips?

Honestly? Save as much as possible - As much as freaking possible. I have a pretty complicated budget spreadsheet that I check in on basically everyday. It's broken down by paycheck for the year. Each paycheck I can see what bills I have to pay and what's leftover. Of the "leftover", I put 25% into cash savings, 25% into "couples fun" (for date nights, trips, etc.), 25% into "solo fun" (for solo travel, clothing, etc.), and 25% into retirement. Sometimes I have more leftover than others, depending on the bills, but I try to make sure that I "steal" that money from myself right away.

I don't MAKE very much so I don't have a huge retirement account, but I know I'm in a better position than many my age (32).

Save as much as freaking possible is right. Also we have been working with a financial planner for over 20 years. Even after careful planning I'm still scared.

 

[swingirl]

Save and invest wisely. I am hearing of more and more people who are being laid-off or "retired" in there 50's and are not finding high paying jobs comparable to the ones they lost. I don't know many people who are working up until 65 or 66 any more. So even though you plan on working until YOU decide to retire, it might not work out that way. It seems to be near impossible to get a "good" job when you are 60 since there are so many younger people with more potential to grow with the company.

So save while you have a secure income and don't waste money on stupid stuff. Jewelry is not stupid!!!

 

[azstonie]

I made it a point to work where there were employer-funded pensions, including health insurance at retirement. I have 3 pensions, which I've elected to begin at age 60, a few years off. Same for DH.

 

[diamondringlover]

I will watch this with interest..you people give very sound advice...I am 8-10 years out to retirement, I made the mistake of not starting soon enough..there wasn't enough money left over when I was younger after paying bills, child care expenses, ect...I didn't seriously start saving till about 5 years ago..now I am trying to be aggressive in my savings. Always take full advantage of what your company offers..my company use to have a pension plan and offered money towards 401K...I didn't take full advantage of that, I regret that, now they only offer the matching portion towards the 401K...so I accept I will be very poor when I retire...but it is what it is, sometimes current life takes precedence over the future.

 

[cmd2014]

Most banks will offer free financial planning. You can ask them to put together a plan for you with how much you should be putting away each year to be comfortable (however you personally define that) in retirement. Even if you start small, what you invest early will have more impact than what you do later.

 

[momhappy]

Saving for retirement can be tricky, but it sounds like you've gotten some good advice here. I was lucky because my mom worked in financial planning and over the years, she's given us some good advice/guidelines to help us achieve our goals. I would suggest checking with your bank because they might have someone you can sit down with at no charge.

 

[anne_h]

Personal financial planning, one of my other personal interests, along with jewelry.

Okay, some points below that come to mind. I'll add more if I think of them...

- If your employer has any kind of pension or retirement matching system, USE IT. It's like free money. Better than any return you could earn alone in the market. Ditto for any non-retirement specific programs, like company stock matching, etc. FREE MONEY.
- Try to have your mortgage paid off by the time you retire, assuming you own your home.
- I'm a believer in the school of 'save enough to fund your estimated expenses during retirement' vs the old rule of 'save enough to fund X% of your pre-retirement income'. Remember that if your home is paid off, your expenses will decrease accordingly. Remember to factor in any pension or government benefits you will get. You will just need to make sure you can cover the difference...
- I'm a believer in having plenty of stock exposure in your portfolio (eg: high-equity mutual funds, index funds, etc), especially if you are a ways away from retirement. If you want your portfolio to grow, don't put it all into a bank account or GICs. Very low growth. You will likely not keep up with inflation, which will erode your purchasing power when you need the money.
- I'm also a huge believer in NOT paying high management fees for your investments. Some can be as high as 2.5%+, which eats greatly into your overall return! Consider index funds or ETFs, the management fees (MERs) are much lower, allowing your portfolio to grow faster. If you are working with an advisor, ask specifically about the fees/commissions you will pay. You need to know upfront. BTW, be aware if your advisor is coaching you to change your investments regularly. This may be so s/he can get more compensation. Ask upfront...
- DOLLAR COST AVERAGING! Invest small amounts regularly, I do mine monthly. That way, you make market gyrations work for you, and not against you. It's a great hedge, and a great way to help your portfolio grow. Even small contributions add up over time.
- If your investments pay dividends, re-invest them automatically.
- Don't sell anything in a panic if stock markets go through a down period. I kept buying through the 2008 recession and it's paying off handsomely now. Refer to dollar cost averaging comment above...
- Once you have learned the ropes and feel more confident, considering managing your own portfolio. Most banks and financial services firms allow you to manage your portfolio yourself online. But admittedly, it's not for everyone.

I don't live in the US, so may be missing retirement planning advice particular to that geography. To my fellow Canuks I suggest: Use your RSP & TFSA room where possible.

Hope this helps!

Anne

 

[Sky56]

Plenty of good advice here, especially "never selling when things are low re: investments."

The key to being able to retire comfortably is: Save and invest during your working, income-producing years if possible. Be willing to make sacrifices and delay gratification ie: don't buy that new car you want and instead use that extra money to pay down your mortgage.

Enjoy your life, buy and do what you want, but shop for sales and deals.

My favorite form of investing is real estate. All investors must be able to accept risks, make mistakes and learn from them - the key is percentages. We have been 90% successful, 10% stupid mistakes that caused pain. You can build wealth and make millions if done properly, have some luck and proper timing and curtail impulse spending.

it's not easy but can be done - We borrowed money from a bank and carefully invested it in real estate. As money came in, we paid back the bank in increments. The bank and the tax man get paid first, then money for personal use is carefully spent, it takes patience, hard work, sacrifice and planning to do this. We did not use financial planners or any advisors.

 

[iLander]

Try to start a business or side business. We were self-employed for over 30 years and socked away as much as we could afford in a SEP-IRA. That's a simplified employee pension. You can put away something like 25% percent of your income, tax free. The tax is paid when you take it out, but it can grow and you can choose to withdraw when your income/tax bracket is low. This is muuuuuch better than just socking away a couple grand a year.

Buy rental properties in a market with excellent rental rates and a large number of renters. Then you can pick and choose your renters, and the return rate is higher than the rate for CD's and certificates of deposit. Consider buying/renting out your future retirement home now. It's not like it will be cheaper 30 years from now.

Pay off your mortgage (save on the useless mortgage insurance just by paying off 20% of your mortgage. But when you buy a house, make sure it has a "limiting factor" as I call it. Not just any house in any neighborhood, but one that will compete well with the other jillion of houses when it finally goes on the market. Lakefront, good school district, water view, etc., are limiting factors. It's expensive now, but it will be even more expensive in the future. Don't pay a lot in homeowner's fees or you will be poor for life.

Don't eat out so much. It's ridiculously over-priced and a week later you won't remember you did it. Learn to cook gourmet. If you do eat out, make sure it's freakin' memorable, even if you have to spend more. Better one dinner you remember than 5 you don't. Bring your lunch to work. Refill frozen dinner containers with your own leftovers if you feel awkward about it. Five dollars a lunch can be $100 a month, or $1200 a year. That's an IRA contribution right there.

Buy stock in a company that is located in a city you want to visit. Go to the annual stockholders' meeting and use that as your yearly vacation. You can usually write off the travel costs and expenses. At least this used to be true, I've only heard of people doing it. Same with visiting your rental properties (but I have to say, most of your vacation could be spent doing repairs ).

Things I wish I hadn't blown money on in the past: furniture, new cars (only used from now on), designer goods that I don't use. If you want to know how much to spend, check the price on amazon and ebay first. Don't pay more than that. Sell it when you're bored with it.

Pay half your mortgage every two weeks. This will result in 13 "months" of payments a year (do the math). It will feel no different that a monthly payment. Make sure your mortgage has no penalty for this and that the extra will apply to principle. I strongly suggest you get it in writing.

Every little bit adds up. Being self-employed for so long, we were constantly saving because we never knew when the bottom would drop out. No weekly guaranteed paycheck for us! It can be done, but don't underestimate the difficulty of it. I'm retired now, and I am enjoying the freedom.

 

[diamondseeker2006]

My husband plans to retire when he turns 62 in a year. I stopped working about 6 years ago when we moved. But for many years, we were conscientious savers and conservative spenders. I wasn't buying a lot of jewelry back then. We saved for retirement, kids' college, had a solid emergency fund, and had an extra retirement savings for fun money after we retire. We paid cash for cars and no credit card debt ever. With the 401k, pension, and SS, we will be able to continue to live at our current income level.

I am somewhat worried about the economy and feel like there will be another big crash, but all the financial planners seem to say to keep some money in stocks since some of the money is long term. We have moved a lot to low risk, low return investments. However, most of them are not insured accounts. If any financial planners here have advice about that, I'd be happy to know!

 

[Sky56]

Crashes are scary of course, and I feel terribly for the people harmed by them, especially hard-working ordinary people...but they are the best times to buy investments. Like a poster above, I bought good but low-priced real estate after the crash of 2008.

 

[diamondseeker2006]

That is when we bought our new house, in 2009! But after retirement, it is a little scary to me to have a big crash and uninsured accounts. Because that affects 401k and pension funds, and SS is already in trouble. I feel for our children because I don't see a bright financial future ahead unless there is very conservative living/spending and very aggressive saving and investing in the right things to totally fund their own retirement.

 

[Niel]

If you're interested in a financial planner I found this enlightening

https://youtu.be/gvZSpET11ZY

 

[Elizabeth35]

Re: Retirement - how do you get there?

First---good that you are thinking about this and planning!
I see many folks who choose to put their head in the sand because it is difficult to come up with a number and even harder to save.


I think there are two basic steps for retirement planning---and your question is about step #1.

Step #1--How to come up with a comfortable $ value needed for retirement?

Google 'free retirement calculator'. There are tons from AARP, Edward Jones, Vanguard, banks, etc.
Do them all! Don't give up when you have to make a decision such as estimated rate of inflation or return on your investments or retirement age. Just use an historical average.
Keep playing with the calculators and you will eventually come up with a target range for how much you need.
Filling out these calculators will require that you know what you have now as well as checking what any expected pension, Social Security, etc. will be.
I agree with others that you should aim for 100% of current income (unless you are currently saving a huge percentage and living far below your means).
Now that you have a target number---do the math and see how much more (if any) you need to acquire/save.

Step #2--How to reach your target number?

There are calculators for this as well----plug in what you have and when you want to retire, you will then see how much per year you need to save.
There are many good tips in the posts above regarding saving and cutting expenses.

Retirement saving is about delayed gratification. Most of us have to forego some of our immediate 'wants' or lower our standard of living in order to accumulate the $ for a comfortable retirement.

You will be so thankful in 20 years that you worried about this NOW and planned for retirement.
Good luck!

I retired from my corporate job last year and every sacrifice I made so that I could max out my 401K contributions was completely worth it!

 

[PierreBear]

Hi All - Wow ya'll are amazing and thanks for sharing the wisdom. I hope others who have been following this thread have picked up a few golden nuggets as well.

It was a great reminder to hear all the tips/guidance/action plans? My husband and I live very conservatively, essentially on one income even though we are both working. When there is a raise/promotion, we don't change our life style but of course we allow ourselves some more luxurious here and there. We aggressively made payments on our mortgage so our house is paid off, max out IRA contributions/401K company match. However, with all this and possibly no children, I want to believe that early retirement might be in our future but how early is too early? Also, I always feel weary blowing part of the savings on a beautiful ring because what if a medical issue arises or a crazy brixtal vote happens and the economy changes overnight. haha! I know no one has a crystal ball but perhaps the question I am asking along with how to do it which everyone has shared but using a jewelry analogy, how to be "mind clean" with the actions/decisions. I guess if you didn't pick the right number, the option to work is always there?

 

[Elizabeth35]

Yes--the future is uncertain so planning is imperfect.
Here is something our financial advisor preaches----re-evaluate your plan regularly!
At least once a year do a thorough review and see how your plan is working.

I agree it is very complicated. And when you are retiring it gets more complicated as you have to decide which assets to tap first when the time comes---taxable or those that are tax-free?
In the US we have to decide when to take Social Security. So for a married couple you need to decide when each person should take Social Security and part of that planning is guessing who might be the surviving spouse and what are the survivor benefits. Add to this that you need to figure out tax implications of working part-time and when is the right time to start making withdrawals---and from whose 401K/Roth/SEP.

If it is really giving you stress---maybe it would be worth paying a financial advisor for at least a one time review? They have some powerful software that can do Monte Carlo modeling that may be helpful to you.

Yes---there are no guarantees but you are so clearly on the right path!