Wow, we’re really having fun, going through all our resolutions and seeing what we can do to help keep them (for a change). So far, we’ve covered how to pay off debt and follow a budget; now, it’s time to get into one of the big ones, preparing for retirement.
Getting your financial ship in order so that you are ready when retirement rolls around is not always an easy task. Unlike paying down debt, where there’s really only one way to go (namely, paying more than the minimum each month, so you bring down your balance), there are many possible ways to help ensure your golden years are filled with plenty of gold. Numerous options are on the table, from upping your 401(k) contributions to starting an IRA, and any (or all) of them MIGHT be what you need to do to make your retirement bright.
No matter what plan you decide on to shore up your retirement funds, though, you’ll still need to do what we’ve been doing all week: make your resolution actionable, specific, and reasonable:
Actionable: Ensuring a well-financed retirement is a good goal, but it tells you nothing about how to get there. Luckily, there are any number of avenues open to you to help improve your future retirement. Some possible resolutions could include:
-Opening a 401(k) (or similar pretax retirement plan) at work and contributing to it
-Starting a Roth IRA at a mutual fund company
-Pay down your mortgage faster, so there are fewer expenses in retirement
As that last point probably illustrates, there are ways to improve your retirement prospects that don’t involve directly investing in a retirement account. There are numerous other possibilities, from ensuring that you have adequate insurance to making out a will (and possibly a trust), but let’s stick with these three for the time being.
Specific: As always, we need to ensure that our resolutions are exact if we hope to use them as a guide to our (financial) lives, so let’s see how to make these resolutions more specific. Luckily, when we’re talking about resolutions like this that involve saving and investing, it’s not that hard to make them more precise simply by attaching exact numbers to them:
-Opening a 401(k) and setting up an automatic contribution of 10% of your gross salary.
-Starting a Roth IRA and maxing it out every year (for this year, that comes out to be $416.66 dollars each month)
-Adding an additional 10% to your mortgage payments each month, with the goal of paying down your mortgage several years earlier than scheduled
Now, these are just some possible numbers to use with these resolutions; depending on your circumstances, you might be able to put more money aside for retirement, or you might have to put in less. Which brings us to the final consideration about these resolutions:
Reasonable: More than any of the resolutions we’ve covered so far, saving for retirement brings on questions of how much is too much. If you endeavor to put as much money as humanly possible into your retirement accounts, you’ll make your future more secure and have more money available when you do retire; but it will be at the cost of spending much less money now. On the other hand, you can opt to spend more and invest less, which means more fun now but more problems later.
Optimizing your investment/spending balance isn’t easy, and if you are in a low-income job, it gets even trickier. Ten percent of your salary (even before taxes) might be too much if you are below the poverty line and barely making ends meet as it is. Similarly, four hundred dollars a month might be too much to put aside in a Roth if you are only making $1000 per month after taxes. And of course, if you can barely afford your mortgage already, then tacking an extra 10% on is probably out of the question.
The point being, you have to adapt personal finance advice to fit your own situation; setting reasonable goals means knowing what resources you have available, and adapting your plans accordingly. Don’t try to stretch your budget beyond its breaking point, even if means having to put aside less money for retirement (and potentially having to delay your retirement a bit in order to meet your goals).
As with any thing worth doing, preparing for retirement will take some time, but if it allows you to have a more secure and rewarding retirement, it’s more than worth it. As with any resolution, it will take time and effort to get it right; good luck to you!
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