Timeframe: Mid-30s to early 40s
Objective: Develop the habit of saving.
Savings: 1.5 times your annual salary before taxes by age 35.
- Take full advantage employer-sponsored retirement plan savings which is the easiest way to put your savings on autopilot.
- Boost your contribution. Increase your savings rate as your paycheck increases.
- Explore other tax-advantaged ways to save. Depending on the country that you are in, there may be other tax advantaged savings opportunities that you can explore.
- Six month Emergency Fund. Always have six months of savings tucked away somewhere that you can draw on if you are laid off or have a health issue that prevents you from working.
Invest in Quality.
- Never invest in high risk investments. Seek out quality blue chip investments that have both a growth potential and pay dividends.
Timeframe: Mid-40s to early 50s
Objective : Focus on how you invest your money.
Savings: 3 times annual salary before taxes by age 45
- Review your portfolio. Work with a financial adviser and re-balance your portfolio along the lines of your investment profile. This can be scheduled annually or after a significant change in the markets.
- Update your investment strategy. As you get closer to retirement, you will want to update your investment strategy and reduce risk exposure that may be in your portfolio. The objective is to move in the direction of preserving capital and maximize income.
- Catch-up contributions. If you have fallen behind on your contributions or just want to make an extra deposit, this is the time to do that. Getting ahead of the savings curve can have huge benefits in terms of meeting your objectives at retirement.
- Give yourself a reality check. Use one of the retirement calculators that are available and plug in the numbers. You will know quickly if you are on target or not and whether you need to make some adjustments to your assumptions and savings plans.
- Consolidate retirement accounts. Many of us have more than one job through our career and may also have more than one retirement account as well. Consolidating them can make it much easier to manage and achieve your objectives. Always make sure that your investments are diversified across stocks and bonds.
Timeframe: Mid-50s and beyond
Objective: Decide what type of retirement you want and how much money you will need
Savings:6 times your annual salary before taxes by age 55.
- Prune my stock portfolio. As you get closer to retirement and plan to withdraw your funds, you will want to keep more of your portfolio in cash so that you are less exposed to market fluctuations. Having 2 years worth of cash is a great way to avoid having to sell low to meet your retirement cash withdrawals.
- Plan your retirement. When you retire, how will you fill the hours of each day? Will you travel, will you move, what hobbies will you follow and will you have the money to meet your plans? fill your days and you will enjoy them much more.
- Review your income plan often. As you approach retirement, it is a good idea to review your plan often to confirm and update assumptions about your expected income as well as your planned activities and expenses.
- Decide when to take Government Pensions. Taking government pensions early usually means a reduced pension, however cash flow and money needs may make it necessary to cash in early. Health issues are another issue. Use one of the calculators to help you decide when to take your government pension.
- Develop a Plan B. Life throws a lot of curves at us. Over a 30 or 40 year planning horizon, many changes to your assumptions can occur. Develop a plan B that helps you to meet your goals. Some people will do a sensitivity analysis on their assumptions to see what happens. For example, assume you will need to retire at 60 instead of 65 due to company layoffs. What does that do to your retirement savings plans and life style?
If you spend some time on this now, retirement will be far more rewarding and quality of life will be far more enjoyable! For more ideas about retirement planning, click here.