It is an unfortunate fact that far too few people save adequately for retirement during the first half of their working lives. But if you have reached the stage when retirement is no longer some remote and foreign land, but is looming just over the horizon, it is never too late to think about your moneyâ€¦and your life.
Decide When You Want to Retire
The first step is to formulate a plan. You may have thought vaguely about when you will retire, but now it is time to nail things down a bit. It can always be changed later, but if you donâ€™t have at least a theoretical date in mind, you may never get round to doing anything.
If you are in a relationship, make it a joint plan. Itâ€™s not necessary for both of you to retire at the same time, and if one of you can support the other for a while, that will delay the time when you need to start drawing on your pension which will boost the fund available.
Decide What You Expect to Live on
This is a hard bit. Not many of us can expect the same income in retirement as we had when working. But work out what is the minimum you think you could cope with. A number of your expenses will probably be less than they are nowâ€”your mortgage may be paid off, you probably wonâ€™t need to travel so far, and you can always share a car.
Check out what extra sources of income you may have in retirement. You might take a part time job, or let out rooms in your house. You may have a hobby or skill which could be turned into a way to make money.
Decide What You Can Live on Now
Having estimated what you want to have in retirement, ask how close you can get to living on that amount now. It wonâ€™t be entirely possible because you have different expenses, but you may be able to get to a figure that would be similar for your personal living costs.
If you start to survive now on an income that is similar to what you expect in retirement, you will not find it too much of a shock when the time comes.
The difference between what you are spending now and what you could manage to live on is the amount you can be saving towards your retirement.
Decide How to Save
First, make sure that you are getting the most from any tax-efficient means to save. Over-50s who have a 401(k) pension arrangement can make a significant increase to their contributions. So too can those with an individual retirement account.
Conventional advice is that you should split your investment between stocks and bonds. Unless you are experienced in the ways of the market, you will probably need the help of an investor services company to guide you through the jungle of what is available.
Decide What You Want to Do with Your Life
It is not all about money, although it sometimes seems that way. Retirement is a stage when you have less money but more time. Most people find, so long as things donâ€™t get too tough, that it is a pretty good trade.
The greatest danger with retirement, after financial anxiety, is boredom. The novelty of not having to get up in the morning soon wears off. The time to start thinking about how you are going to use all that lovely spare time is long before it arrives in your lap.
List the things you want to achieve. You may want to work and earn extra money. You may have hobbies that you have always wanted to pursueâ€”but donâ€™t promise yourself something you probably canâ€™t afford. You may want to volunteer, perhaps to help a charity that supports projects you are keen on.
Donâ€™t forget the time you will need to invest in maintaining your health in retirement. Exercise will be your greatest friend and, for the most part, it will be completely free. Your mental health will also require you to replace the personal contacts that work currently provides, so think about how you will achieve that.
A Mixed Blessing
Planning for retirement can be exciting, but it can also be worrying. It can be tempting to put it off for another day when you have more time and inclination. The lesson of most advisors is that the sooner you start to prepare for your future, the more you will value it when it comes.
Freddie Houghton is a personal finance consultant who shares his wisdom online with those seeking a better future. With retirement age rising, and pension plans constantly changing he focuses on these topics.
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