It’s no secret that setting a budget and sticking to it can save you money. The trick is doing both and doing it well. That’s what we’re going to explore in our new series – Building a Better Budget. It’s all about how you can save yourself some money with a little budget planning and taking advantage of some useful tried and true tips. For more tips, check out Part 1, Part 2, Part 3, and Part 4.
Ask yourself – What you want to do when you retire? Where do you want to live? What do you want to do with your spare time? Travel? See the grand kids? Pursue a hobby or three?
Of course, the trick is How do you pay for it all?
Nowadays, funding your retirement to maintain your current standard of living takes about 70% of your pre-retirement income. And for lower earners, that could mean up to 90% or more. The average American spends 20 years in retirement — so planning your retirement could take an awful lot of work.
The most common way to pay for retirement is to save as much money as possible while investing in retirement funds (such as tax-deferred IRAs and 401ks) as well as putting money into income-generating investments. That all said, here are six handy hints to keep in mind as you plot your course to responsible retirement planning.
1) Plan to Downsize — Sometime. As you get older, your living needs will change, especially after your children have grown and left the nest. This includes travel, upkeep costs, health, and even the need for space. Moving to a smaller home lets you cash out the equity you built up over the years in your current home while reducing what you spend on utility costs.
2) Fiduciary vs Suitable Financial Advice. Financial investment professionals don’t always look out for YOU. Shop around and ask them questions — especially whether they act as fiduciaries. This means they are a financial advisor who has a legal duty to act in your interests. Stockbrokers, on the other hand, buy and sell stocks because they get paid on commission. They’re responsibility to you is that they need only make investments that are suitable for your situation. They also have fewer restrictions covering conflicts of interest, including selling shares they have also invested in or trying to sell you investment packages owned by their company.
3) Fees? Fie, Fo, Fum! Investment companies charge giant fees take big bites out of nest eggs. Administrative fees, asset management fees, and marketing fees can eat as much as $154,794 over the course of a lifetime in effective total fees from a median-income two-earner family. Indexed funds are known to carry significantly lower fees, lower or no sales charges, and have proven track records.
4) Employer Retirement Plans Must Appoint a Fiduciary. If your 401k plan is through your employer, they are required by law to appoint one named fiduciary to monitor investments that are made in your best interest. Failure to do so violates the Employee Retirement Income Security Act of 1974 (ERISA) Fiduciary law. But there can be conflicts of interest popping up between businesses and their retirement plan companies. Check the amounts paid for fees on your 401k statements. If these add up to half a percent in expenses on the funds in the plan, you might want to ask questions because these fees reduce your retirement savings.
5) Stay Focused on Your Investments’ Long-Term Returns. Don’t panic when Wall Street panics. Rough economic spells gouge most investments, but the market does recover and bounce back. In fact, if your dividends are set up to automatically reinvest, you may benefit by being able to purchase more shares when prices tumble at a considerable discount which may be worth more when the market rebounds.
6) Research Your Investments. Researching a company can usually tell you right away if it’s worth investing in. You can learn who is heading it, who are the principal officers, and what the product or service is. Companies and bond issuers are required to publish this information publicly. Surprisingly enough, many investors will buy stocks just based on hype — remember Enron? However, the more you know, the less you’ll likely you’ll lose money on your investments. You’ll also become more knowledgeable of the areas you enjoy investing in and be able to devise an investment strategy that works for you.
Retirement planning might seem like an insurmountable goal or unrealistic task in the midst of paying for your day-to-day life, but incorporating a few of these tips now will help you prepare for your future needs. It’s important to be prepared.