You were young and you just started your career a couple of years ago. You still have many years of work ahead of you. But then, someone talked to you about retirement planning. While he passionately shared his excitement about his plans, you pretended to listen when your mind was wandering around.
“Retirement plan is so not sexy”, you think.
When the person left, you happily shrugged everything he just talked about and moved on with your life.
Now, fast forward to your mid-thirties. Your career is booming and your family is expanding. Your expense is increasing and it seemed like despite the increase in your salary, your family’s demand is increasing as well. Somehow, your income is never enough to cover every need.
A thought of retirement plan crossed your mind, but it’s not a good time. You have a lot of important things to spend your money on.
Speed up to your mid-forties. Your kids are in high school or college. You didn’t know they would need that much money for tuition, clothes, prom clothes, studying tools and other countless things.
You started to worry about your retirement. You looked into some retirement plans and were amazed at how compound interest worked. Now, you wish you started it a long time ago.
If you saved $1,000 a month, when you retire, you could have around $500,000. But how in the world could you save $1,000 a month?
Then you thought about the medical bills when you age and the mortgage you are still paying. No way you could save more than $200 a month. You thought you were too late.
The truth is, the sooner you started your retirement savings, the better. But, that doesn’t mean you can’t start when you’re in your mid-forty, mid-fifty or even mid-seventy. No matter how late you start, an effective retirement plan could help you a lot in your future years.
Here are 6 secrets to effective retirement planning:
Never run out of money
The first thing to remember is to make sure you never run out of money.
If you start your retirement savings early, that’s great. If you start late, don’t get stressed out and try to make up for the past years by saving the highest amount of money you can.
Don’t confuse retirement money with emergency money. You always need emergency money. That comes first and retirement comes second.
Don’t be fooled by the big fat juicy yield
When deciding your portfolio, don’t go straight to the highest yield possible. Higher yield means higher risk. Be careful as all the stocks and bonds in the market try to emphasize their high yields with a little or no talk about the risks associated with them. That’s what they do to capture you.
Don’t be fooled by their lip-deep promises. Do your own research about the companies you want to invest in and diversify your portfolio. You will be much safer if you put your eggs in different baskets.
Watch out all hidden fees
This is an area that you need to put an eye on as those fees can take a bite out of your returns.
Think of all the scenarios that can happen and find out if there is any fee applied to them- from registration fee, investing fee, transaction fee to cancellation fee. You don’t want to find out you have to pay a penalty fee if you sell your preference bonds at the very last-minute.
Automate your retirement saving
Many people prefer to set up their retirement savings on autopilot. This way, you can’t touch that money and you also don’t have to worry about how much you should put into your pension plan.
If your employer offers a pension plan such as 401(k), make sure you register for it. If not, you can ask your bank to automatically transfer a sum from your account every month to your savings account.
Assess your retirement plan every year
Once you find your retirement plan, don’t abandon it. The market goes up and down and so does your portfolio.
Revisit your portfolio often or make sure to read notifications from your portfolio manager to assess how well your retirement saving performs. Make adjustments if needed. This way, you’ll be able to stay on track for a better retirement.
Increase your retirement savings every year
At the beginning, when you see a drop in your net salary, you would struggle to make it fit all your family’s expenses. However, once you are in a place that your net salary must work, things will work out. You would no longer pay for something you never use, like some cool gadgets or a gym membership.
Once you cut down all the unnecessary things you normally spend money on, you would save a bit more from your salary. Don’t use this leftover money to buy something fancy as a reward. Put it into your retirement plan and set a goal to increase it by 1% every year.
Over to you
Creating an effective retirement plan requires hard work and commitment. It is not a sprint, it is a marathon. But, the hard work is definitely worth it.
Imagine your last working day before saying goodbye to 30 years of hard work. Your last paycheck is in your wallet. You drive home after a fancy farewell dinner and you have an exact plan on what to do next.
You come home to your spouse to start packing luggage for a vacation. Only this time, you don’t have to worry about getting back to work. Your vacation can last as long as you want to. You can totally afford it without a second thought because you have a great retirement plan to back you up.
And it really can. It is never too early or too late to start your retirement so start today.
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Author: Mai Pham
Mai Pham is an employee during the day, an employer at night. As a solo-entrepreneur, she knows the barriers to start a side hustle while working full-time. She helps people to build a profitable side business while maintaining their work-life balance. Grab her free cheat sheet “6 magic steps to make 12+ hours a week for your side hustle while working full-time”