Mixed Bag Monday – Reaching Retirement

There are many financial goals you might have, from saving money for your children’s education to upgrading your home. But there’s one goal that stands above all others for most of us: retirement. Yes, the time when we can say goodbye to work forever is one of the biggest goals that most of us have nowadays. It’s also increasingly a personal responsibility, with all the individual retirement accounts and 401(k) plans.

With this emphasis on individual savings to reach retirement, it is more important than ever before to know what sort of preparations you need to make and make sure you do proper retirement planning. Otherwise, you’ll end up delaying when you are able to retire (if you are able to retire at all, that is), and who wants that?

Q: How Much Money Do I Need To Retire?

A: That’s a tricky one; depending on what you wish you do in your retirement, you’ll need different amounts of money. There’s no hard and fast rule, but try this to get a planning number. Take your ideal yearly spending level, increase for inflation (double the value for every fifteen years until retirement as a conservative estimate), and then multiply by 25 (as 4% is considered a safe withdraw amount). You can also take advantage of the assorted retirement calculators available, to get a general idea of your needed savings.

 

'Enough money to swim in like Scrooge McDuck' is a decent, if somewhat vague, goal.

Q: What Investments Should I Use to Build Up My Retirement Accounts?

A: You’re going to want investments that have a high growth potential; stocks and stock mutual funds should form the bulk of your portfolio. They give you the possibility of building up your net worth at the quickest rate, allowing you to gain a higher net worth and hopefully retiring earlier. (You should also consider options like REITs to broaden your portfolio.) Now, this doesn’t mean you should have all of your money in stocks, particularly as you get closer to retirement; you should try to build up safer investments as you get closer to retirement. But that’s another question…

Q: How Do I Keep My Retirement Money Safe?

A: While stocks are useful in building your retirement funds, they do present the possibility of losing that money quickly in a downturn. You don’t want all your retirement money in stocks, particularly when you start approaching retirement; you want to move part of your savings into bonds and cash equivalents. There are numerous theories of how to divide this money, but my advice is to keep money you will need in the next 2 years in cash, for the next 3-8 years in bonds or similar investments, and for beyond that in stocks or other growth investments.

Q: Where is the Best Place to Retire?

A: Another tricky one; it depends on what you consider to be the ‘best’. Do you want to be closer to your extended family, or even further away? (I can sympathisize.)  Do you want to party all night or relax all day? Do you want to see the world, expand your knowledge, start a new career (alright, this isn’t technically retiring) or simply relax? Your answer to these questions (and numerous others) will determine the best place for YOU, personally, to retire, which might not be the best for someone else in different shoes.  (Although, there are more than a few suggestions out there.)

Q: When Can I Retire?

A: It’s difficult to put a timeline on that, with the numerous factors involved. The biggest one is your own level of retirement savings; once you reach the point where you can (safely) take enough from your savings to cover your spending, you can choose to work or not work as you see fit. Beyond that, you want to consider things like pension eligibility (if you are lucky enough to have that option), vested company matches, and Social Security payments for my US readers. The more you save, though, the faster you can call it a career and start the retirement fun.

I know that’s barely scratching the surface of retirement issues, a subject that fills hundreds of books and dozens of magazines. But hopefully this provided those of you are the absolute start of your retirement planning adventure with a few tips to get you looking in the right direction. Good luck!

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