Know when the best time is to start planning for your retirement? Yesterday. Unfortunately, most of us live with the belief that we are going to somehow, without much conscious effort, fund our retirement and sail off into the blue seas with nary a financial worry in the world.
The reality is somewhat harsher than those pie in the sky dreams. Most people are dead or broke by the time they hit age 65 (or 67 depending upon what retirement age you're shooting for.) Since this isn't an article on living better, longer lives we'll focus on how to not be part of that broke crowd.
To be clear, being broke at retirement age simply means one thing: you'll continue working until which time you are unable to put out the effort that brings you in the dollars. It's not very appealing. Long gone are the days of the company pension being there to take care of those employees who have put in 20 or 30 years of service.
With the definite uncertainties surrounding the Social Security system in this country, it might be fool hearty to think there will be any revenues coming to you from that agency when your time comes to collect.
So what's left to do? In a nutshell, you need to immediately start planning for how you'll be able to fund your retirement when you get to that point in your life. Obviously, the closer you are to the age when you hope to stop working the more you'll need to have socked away.
If you have them, start looking over your investments. What sort of risk have you been subjecting your money to? As you get older, it could be a good idea to slowly (or lickety split!) move out of the riskier investments and into more conservative funds that have less of a chance at losing money. As many people experienced during our last financial meltdown, even what has traditionally been considered safe, secure investments experienced massive loss of value.
Diversification is the next word you'll want to explore. Those proverbial eggs being in the same basket may not be the most advantageous safety net for your retirement funds. Should the bottom of the basket fall out, splat goes your ability to provide income to yourself and any dependents.
Understanding how and where you spend your money currently should provide you with insight to strengthen your retirement budget. Conservative estimates indicate it wise to try and provide from 60 to 80% of your current income as your retirement money. Obviously, if you are able to reduce what you need to live comfortably now, in the future, you should need that much less to maintain the same level of comfort in your lives.
Whether you're considering an early retirement, or are simply looking to move into another new and exciting chapter of your life, you'll need to have a plan. Some issues you'll need to address are reducing your debt now, while your income levels are higher.
It might also behoove you to spend some time with a tax specialist. There are a number of vehicles you can begin to develop now that will provide your retirement with every chance of success. Whether you're planning a family trust to efficiently pass on wealth to your offspring, or are hoping to develop passive income with a well structured corporate entity, know your options. There are a lot of rules, regulations and laws that when used correctly can provide you safe harbor for a nice percentage of your retirement income.
How are you budgeting for your retirement? Share with us, in the comments below.
This is a guest post from Tim Coffman who is a freelance writer for Quicken. Quicken offers personal finance software that makes money management easy. Quicken’s products help people get their spending under control with helpful budgeting tips.
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