“Will I have enough for retirement?” is a very difficult question to answer. Last week I left on a low note by introducing you to the 7 retirement factors you cannot control. I guess it was probably a little discouraging. However, I am not advocating you simply throw up your hands and ignore retirement planning. I am suggesting that the process should be simplified and your time commitment to all the details minimal. Hence, the subtitle of this article is once again how not to waste time planning for retirement.
Since there are so many variables, what we need to learn to do is acknowledge those variables and develop an investment plan that accounts for those variables.
How to Plan for Retirement in the Midst of Unknown Variables
* Special Note: These tips are specifically for those in their 20s – 30s. The closer you are to retirement, the more refined your retirement plan can and should be.
1. Vow not to use another retirement calculator for 10 – 15 years.
If you have never used such a calculator, go ahead and run some numbers just to get a ballpark idea of your future nest egg. However, these exercises are extremely time consuming and often produce little tangible results. Typically when some runs a calculator, they realize they need to put in “x” dollars a month and then shrug and say, “With my budget I can’t afford to put that much money into retirement.” At the end of the day they have changed nothing after sacrificing an evening to running the numbers.
2. Identify and focus on the variables you control.
You can control what you contribute, what investment vehicle you use (like a Roth IRA), the fees you pay to a brokerage, and your asset allocation. You cannot control the fate of government programs and you cannot control the direction of the stock market.
3. Determine a percentage of your income to contribute to retirement.
Most financial advisors will suggest a number between 10% and 15%. Obviously, the higher the number is, the more likely you will be able to reach your goals. Perhaps you are doing less. Simply make an effort to increase that amount by at least 1% each year till you reach your desired threshold.
4. Automate your investments.
Once you have set your contribution dollar amount based on your percentage, automate your investments. As a result, you will be most likely to continue your investing habit.
5. Review annually.
Each year review your current finacial plan. Every year you will likely know one more piece of the grand retirement puzzle. That knowledge may cause you to tweak your retirement planning. You may change your asset allocation. You may increase or decrease the percentage you invest. Don’t strive for perfection in the review, just give due attention to the process and then move on to something else.
Hopefully you have a little more confidence to put down the pen and calculator and get out and find a better use of your time then fretting over the question, “Will I have enough for retirement?”.
How do you simplify your retirement planning? How do you deal with the variables of retirement?