It’s never too early to start retirement planning. Retirement may not be at the top of your mind every day, but it’s a reality for the vast majority of Americans, and it can be a sobering reality.
Along with the changing economy come fears — fears that we will not be able to live in the style to which we have become accustomed in our retirement, and perhaps due to circumstances beyond our control.
A hundred years ago, employees frequently worked for the same company their whole lives, and these companies often provided their employees with a pension. In exchange for your hard work and loyalty, you would be rewarded with lifetime security.
But that’s not how it works anymore.
Pensions have been replaced by 401(k)s, which in some instances are not as reliable. Companies have less certainty of their longevity. Many businesses are only 30 days away from a payroll of bounced checks and a padlock on the front door.
You never really inquire into your 401(k); how your portfolio is balanced, are you paying high fees which could be omitted or is your investment properly optimized and is in sync with your retirement planning, the answer is NO. Well, If you have been ignorant of your 401(k) so far, Blooom can help you gain control.
Blooom is an SEC-registered venture advisory firm, which optimizes and monitors your 401(k). It gives you the first checkup for free where it will give you an insight into your account like how stocks and bonds are balanced against each other, what extra charges you could get rid off and other stuff.
You don’t have to delve into the intricacies of investing, just leave your 401(k) affairs to Blooom and it will align your investments according to the age you wish to retire at.
As employees, we sometimes sense the end is near and polish our resumes in preparation. Other times, we are blindsided, left with nothing but 26 weeks of $246 paychecks. While newer U.S. laws protect pensions, these laws have limits, and you still may end up with less than you had counted on.
For all these reasons and more, personal retirement planning is a must.
Should You Get Help with Retirement Planning?
You can attempt to manage your own personal finances, based on books and articles you read, or you can depend on a professional. If you decide on the latter, you have a wide range of options, from the expensive private wealth management firms to a free service you might get from your insurance company, bank or credit card company.
Like almost any investment in your future, the sooner you start, the better off you are. Formulas and algorithms have been developed to target how much money you should sock away and how much risk you should take based on your income, age and other factors.
It can be complicated, and a lot of people get it wrong.
How Much Do You Need in Retirement?
CNBC says that by age 40, you should have three times your salary saved, and by age 65, you should have eight times your salary saved. But in the same article, they say that half of Americans have no retirement savings, and 70 percent of adults have less than $1,000 in savings.
We are a nation of workers hanging on by our fingernails.
Retirement Planning 101
Unfortunately, it is up to the government to make sweeping reforms like raising the minimum wage or lowering the cost of healthcare. Many of us will die waiting for these changes to take place. The Social Security that our parents and grandparents depended on in their retirement is also now in doubt. Thus, we must take matters into our own hands.
Without delving into topics such as making money on the side, let’s assume we can manage to put aside something each week for retirement, even if it is only $10. If we put about $10 a week into a 401(k) starting at age 30 you will net about $71,000 by age 65. That’s about $2,000 a year — four times the amount you would have had simply by putting the money in a savings account.
Of course, it doesn’t really work exactly that way — as your nest egg grows each year, the returns are usually greater because you are investing more. So you likely make less in the beginning and more later on. But this isn’t a hard-and-fast rule either, because you will likely take on more risk when you are younger and further away from retirement. This can lead to bigger yields (or bigger busts, depending on the market. But you have more time to recover.)
Now make no mistake, $71,000 at retirement likely will not deliver an enduring sense of peace and security. This is especially true if you develop any health problems — ones you may not anticipate. Assuming Medicare will still cover health costs for retirees when your time comes, the truth is that even now, uncovered costs for some prescription drugs, surgeries, and other medical necessities can wipe out a retiree’s savings in one short year.
Regardless, $10 a week is better than $0 a week, but our point is that more is better. And more money carefully allocated to your situation and goals is even better. Guessing, hoping and crossing your fingers is a dicey way to do retirement planning.
Careful retirement planning considers:
- Your mortgage and when it will be paid off
- Whether you have any other debt and how long that will take to pay off
- How much your kids’ college education may cost you
- Your budget for how you plan to live
That last one is a major variable. It’s best to start by looking at your budget now. (Take this Consumer Reports quiz to see how you stack up.) If you have three teenagers at home, your grocery bill may be $1,500 a month or more. An elderly couple will pay much less. Those on fixed incomes may also get tax breaks, depending on your city or town. So some of your costs may go down.
But other factors that we can’t predict can wildly throw off the numbers. What if you rent in a big city, and you pay $1,250 a month in rent now, but in 30 years, that same place costs $4,000 a month? What if you have a condo and the units need a new roof or a parking garage? Your assessment could be in the tens of thousands of dollars. What if you are in an accident and the medical (and legal) bills pile up while you wait for your case to wend its way through the courts?
Being prepared for an emergency makes it much easier to manage.
It’s Time for Retirement Planning
It’s never too early or too late to start retirement planning. Even if you are 64 years old, you can make short-term investments that will yield extra dividends that may be small, but can make a crucial difference. And every extra dollar you get in returns is one you wouldn’t have gotten if you opted against retirement planning.
Likewise, if you are 22 years old, you may feel like retirement is a million years away, but even if it is, it’s still going to get here one day, and you need to be prepared. No one ever says, “Darn! I prepared too early or too well for retirement!”
You are being referred to Blooom, Inc’s website (“blooom”) by EveryBuckCounts, a solicitor of Blooom (“Solicitor”). The Solicitor directing you to this webpage will receive compensation from blooom if you enter into an advisory relationship or into a paying subscription for advisory services. Compensation to the Solicitor may be up to $25. You will not be charged any fee or incur any additional costs for being referred to blooom by the Solicitor. The Solicitor may promote and/or may advertise blooom’s investment adviser services and may offer independent analysis and reviews of blooom’s services. Blooom and the Solicitor are not under common ownership or otherwise related entities. Additional information about blooom is contained in its Form ADV Part 2 available here.