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5 easy ways to start your retirement planning now

Last update: 25 June 2014

We're not getting any younger; every day that passes brings a new ache of pain as the ill-founded faith in our ability to live forever slowly seeps away. One minute we have a full head of hair (ok, not quite all of us but you know what I mean), the next it is grey and thinning. Instead of looking in the mirror and recognising that finely formed man or woman staring back at you, you recoil at the sight of a greying parody of Frankenstein's monster!

Piggy bank saving for retirement - photo

Maybe I'm a little harsh; it's quite possible that many of you are growing older with grace. But, today, we're going to talk about something a little more distressing than the first hint of grey: retirement planning.

The world population is ageing! "So what? We all get older!" I couldn't agree more, but the problem facing many of us is this: do you have enough money to see you through your twilight years? If the answer is an emphatic 'yes' then you can stop reading now (although I do recommend you carry on to the end of this post).

In truth, most of us don't know how much retirement is going to cost. There are many considerations to factor in such as where you're going to live and the ever rising cost of living.

So, how seriously should you take your retirement planning? Well, here's some information for you that may make you sit up and listen. Statistics gathered by the U.S. Census Bureau, Saperston Companies and Bankrate suggest that 36% of Americans do not save anything for retirement. Not only that, but of people who start working at the age of 25, only 5% will have adequate capital stowed away for retirement (or be considered wealthy) by the age of 65. 63% of people will be dependent on Social Security or family.

With those thoughts and statistics in mind, let's have a look at some simple ways you can start working towards your retirement plan now, as in today, to avoid being part of that 63%.

1) Work Out What You Need

We already know that calculating your exact requirements for your retirement fund is like trying to plug a volcano with a bottle cork, but let's try. First off, you need to check our retirement planning calculator - this is an excellent place to get an idea of what you need to save for your future.

Now, once you've worked out how much you need, add about 10% on top. Nobody can tell you how much you'll need with 100% certainty, so it's wise to have a little extra in your bag when the day arrives that you receive your final paycheck and your cheap, gold plated watch as a thank for your thirty five years of service.

Note: Financial experts suggest you'll need about 70% upwards of your current salary to retire in comfort.

Possible savings amounts needed for retirement

To assist you further with working out how much you might need for retirement, here are some retirement statistics gathered by the U.S. Census Bureau, Saperston Companies and Bankrate and published on statisticbrain.com.

Monthly income requirement Savings required for 20 years Savings required for 30 years
$1,000 $166,696 $212,150
$2,000 $333,392 $424,300
$3,000 $500,087 $636,450
$4,000 $666,783 $848,601
$5,000 $833,479 $1,060,751
$6,000 $1,000,175 $1,272,901
$7,000 $1,166,871 $1,485,051
$8,000 $1,333,567 $1,697,201
$9,000 $1,500,262 $1,909,351
$10,000 $1,666,958 $2,121,501

The amounts shown assume that your overall portfolio will earn a 6% annual return throughout your retirement and receive a 2% inflation erosion per year.

2) Start Saving Now and Don't Stop

It sounds like an obvious piece of advice, but you'd be amazed how many people don't stick to the plan. Current estimates suggest that as many as 49% of US citizens fail to put enough money away for the day they stop working.

The key here is to start saving now - it doesn't matter what your age is because every little bit counts. The younger you start the better as compound interest will have a positive and beneficial effect on your accumulated wealth.

3) Leverage IRAs and 401(k)

401(k) form

The 401(k) has been around for quite some time. In fact, if you joined the labor market any time after 1981 (which is when the 401(k) was established) you'll know all about them. This defined-contribution pension plan allows an employee to contribute up to $17,500 per annum (pre-tax) to a pension fund. In some cases, employers will match the contributions, or even go a little further in their contributions.

The IRA (Individual Retirement Account) is another scheme that gives savers huge tax breaks. A tax-deferred IRA levies taxes on gains when you withdraw money from the fund. In addition, under certain rules, your contributions may be deductible. A Roth IRA has no facility for deducting contributions, but you pay no tax on withdrawals from the fund.

4) Play the Stock Market

Ok, now we're going to step it up a notch and look at investing in stocks. Time and again, it has been shown that stocks are one way of achieving high returns on you investments. Typically, you'll be looking at long term investments, and we recommend using the services of a broker. Having said that, if you're comfortable delving into the world of day trading then you can forgo an advisor.

One word of caution: read the terms and conditions when you use an agent to handle your investments. Exorbitant fees and astronomical commission rates could you leave you out of pocket as some brokers are known to charge huge commissions for handling your stocks. And make sure you diversify your investments to reduce risk.

5) Leverage Your Current Investments

Are you a homeowner? Well, depending on where the housing market goes (most likely upwards due to the growth in population) you may well find yourself sitting on a goldmine, albeit one made from bricks and mortar. It's a fact that, as we age and the children fly the nest, we need less space in which to live our lives. The six bedroom palace you bought when they were young is now surplus to requirements, and the release of equity can be a welcome boost to your pension.

Sure, it's nice to have a place where your kids and their family can lay their heads when they come to visit, but is it vital?


That concludes our list of ideas for retirement planning. If you're going to take one tip from this article then it should be to start planning now. With an ageing population, and the age of retirement set to rise, don't expect big pension handouts from the state to support you in your lifestyle when you are old and grey.

Written by James Redden

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