How to Get On Track For Retirement
When you are in your 20s and 30s, retirement can feel like it’s a long way off. You may still be paying off student loans, or trying to save to buy a house. It may seem difficult to work toward a goal that is three or four decades away.
Whatever you may or may not be doing to save for retirement, remember that time is the key ingredient to any successful plan. Even with a small initial investment, the sooner you start, the more your savings can grow to support you in the future.
A question many people have is “how much should I save for retirement?” As with many financial metrics, how much you will need in retirement depends upon your needs and lifestyle choices. In answering whether my clients are on track for retirement, I ask them their life goals.
There are abundant general guidelines for retirement, like saving three times your salary by the time you are 40. This does not take into account how you live, and what you want from your life. Spend some time contemplating how you want your life to unfold, and what retirement looks and feels like for you. Then track your spending for a minimum of 6 months to understand your spending habits, and what is important to you. From there, we can determine how to align your money to support your life. Need a spend tracker? Check out the Smart Sister Finance version in this post.
We are all looking for reassurance that we have enough, and are doing enough to keep our finances healthy. Being in touch with your spending is a great place to start. From there, we can use the Smart Sister Finance Retirement Calculator to give you a general goal. You are fully capable of learning and applying fundamental financial knowledge to achieve your retirement goals, and we will be at your side to help you.
Compound interest is the best reason it pays to start early with retirement planning. Compound interest is the process by which a sum of money grows exponentially due to interest actually building upon itself over time. The money you save earns interest. In a savings account, mutual fund, or individual stocks, you earn interest on the money you originally save, plus on the interest you’ve accumulated. As your savings grow, you earn interest on a bigger and bigger pool of money.
Put another way, compounding happens when earnings on your savings are reinvested to generate their own earnings. Compounding can add a lot of value when you start saving early, because you have more time periods generating earnings, and those earnings are earning earnings! Compound interest is low effort, and one of the most useful tools to help people reach their financial goals.
Regardless of your income level or financial confidence, you need a money strategy that supports your life. Saving for retirement is not an impossible goal. Remember that time and compound interest in tax advantaged accounts are your biggest help in saving for retirement. We can help you start wherever you are, and get you where you need to be. Smart Sister Finance is here to help you get on track for retirement. Schedule a free coaching consultation today!