We all make plans in life. Whether it's a plan for the day, plan for a month-long project, or plan for a career path. We plan for our goals, and we plan for the contingencies, and after we plan enough of our life we realize that things often don't go as planned. As the great British science fiction writer, futurist, inventor, and undersea explorer Arthur C. Clarke quoted: "All human plans are subject to ruthless revision by Nature, or Fate, or whatever one preferred to call the powers behind the Universe."
As a financial planner, I like to keep in mind that no matter how well thought out a plan is, success is based on your ability to adjust it. This is what I base my financial philosophy around, and how I work to protect my clients in unexpected and uncertain times. Despite the twists and turns that you will encounter in your financial lifetime, there's a few things that you can do to help keep your financial future on track. Retirement planning is a long expedition (the longer you have on this expedition, i.e. the sooner you start planning, the better) and it's important to do what you can, control that which you can control, and keep your planning in line with reality.
As I just mentioned one of the best ways to get your retirement on track is to start saving for retirement as early as possible. Even if you haven't started saving for retirement yet, the earlier you start the process the better off you will be. Those that can start allocating a certain percentage of their incomes towards retirement while they're still in their twenties will be able to take advantage of compound interest. An earlier start could mean up to hundreds of thousands of extra dollars in retirement savings at retirement. To start saving for retirement, you should start trying to save at least 10% of your income into a retirement account. Over time, this will eventually add up to a significant nest egg.
Another tip that you can follow that will help you to get your retirement savings moving in the right direction is to take advantage of retirement tax-advantaged accounts. 401k and IRAs are designed to help people accumulate more assets for retirement. These accounts provide investors with tax advantages that can add up to significant savings over time. Ideally, you should to take advantage of the full maximum contributions allowable by law. At a minimum, you should take advantage of the full amount of money that your employer is providing you in the form of an employer retirement match. That company match is, in a very basic sense, the best guarantee of growth you can get in an investment with your company promise to contribute a specific percentage. Make this a priority in your financial plan.
When preparing for retirement, most people spend a lot of time looking at various retirement calculators. While these calculators may show that they will be able to retire comfortably, based on their current savings rate, it does not consider other situations that could cause a setback. For example, if you were to lose a job and not be able to save for a year or more, it could end up costing you a lot of money and even require you to dip into your retirement savings to fund your life. These, and other types of setbacks, should be taken into consideration when you are figuring out how much you need to save. Retirement planning isn't a simple formula or calculation. It's a living, breathing, evolving strategy and you need to get it the attention that it deserves.
When you are trying to develop a strategy to keep your retirement savings on track, another factor that to consider is whether you have an emergency savings account saved outside of your retirement accounts. Most financial experts suggest that you have an emergency savings account with at least 6 to 12 months of living expenses set aside. By having this emergency savings account reserved, you will be able to avoid having to dip into your retirement accounts if you were to lose a job, have to pay for a major-medical bill, or experienced another financial setback. Not only will this allow you to keep progressing towards retirement, but it could allow you to avoid having to pay the taxes and fees that come with early withdrawals. This emergency fund has been a feature of a few of our articles recently, and it should be an important feature of your retirement plan as well.
Overall, your retirement plan is going to hit some twists and turns, even some big bumps. You can't control everything, but you can control your reaction to these changes and events, and the adjustments you make to stay on track. Make sure you are following the best plan for you.
This content created by Gary Scheer in conjunction with Fusion Capital Management.