How to start planning for your retirement
Retirement planning isn’t something you decide to do after you’ve saved a lot of money and decide to visit a financial advisor. Instead, it’s something you should start doing as soon as you get your starting job out of high school or college. You shouldn’t wait until it’s too late to save the money you need for retirement. Here are some tips on how to start preparing for your retirement.
First of all, you don’t need anyone’s help to get started. Start by setting aside a few dollars each week from your paycheck. Keep the money in a personal savings account until it grows to a few thousand dollars. And then start investing the funds in the stock market, ideally in various diversified mutual funds, as well as ETFs. Keep saving and investing until you have at least ten thousand dollars set aside. After that, it’s time to start diversifying a bit more.
To help diversify your retirement savings, start looking at your entire portfolio and make sure no one investment, industry, sector or geographic area dominates your assets. In other words, be sure to invest in growth stocks, value stocks, dividend paying stocks, foreign companies, emerging market stocks, technology stocks, manufacturing stocks, and real estate stocks. To do this, start reviewing the mutual funds you have and make a note (ideally in a spreadsheet) of what sectors and types of companies are in each mutual fund. Each fund company is required to disclose its largest holdings, as well as geographic and industry breakdowns of its investments. Make sure you’re reasonably diversified, but don’t worry too much at the moment.
When you have accumulated more than $100,000, you can begin to diversify further. Look at buying real estate, whether it’s a single-family rental property or maybe a duplex. That is if you have the amount of time to deal with it. Otherwise, you can buy real estate funds as well as real estate investment trusts (REITs). REITs are investments pooled in commercial or residential properties that are regulated by the government and must pay out a significant portion of their cash flow each year. They can be an effective diversification from typical assets like stocks and bonds.
As your investment portfolio grows, you should also increase your understanding of investing and the level at which you’re planning for retirement. Find some retirement plan calculators and start estimating how much savings you’ll need to retire. Visit several websites and get several different quotes so you can get a ballpark figure for how much money you’ll likely need to save before you retire. Start working towards this goal and make sure you stay on track. Also, it is very important to keep your spouse involved in your retirement planning. You both need to be on the same page so that if something happens to one of you, your spouse can continue to run your retirement plan.
As the time draws near, you will either feel confident about your retirement or worry. If you’re nervous, it might be worth consulting with a personal financial planner and going over your current plan. They should be able to use sophisticated software that can estimate your likely demands in retirement and calculate the odds of running out of cash given your expected retirement savings. If you feel confident, then it’s time to move on to the next step: retirement!