Planning for retirement can be more of an art than a science. That’s because you have to make lots of educated guesses about variables like:
- how long you’ll be healthy enough to work
- how long you’ll live
- how much you’ll spend each year during retirement
- what the inflation rate will be decades from now
- how much (if any) Social Security income you’ll receive
- what investment returns you’ll get before and after you retire
As much as these details can fry your brain when all you really want to know is how much to invest each month, don’t let them bog you down. I’m going to give you seven easy ways to make sure that you retire rich and on time without having to do any number crunching.
But first, I want to share a pointer that I learned when I was taking golf lessons. The pro told me a secret to making more putts. He said to imagine the hole as the center of a larger target—like the bull’s-eye on a dart board. He encouraged me not to focus too intently on the hole, but to visualize a two or three-foot-wide circle around the hole as a broader target. It’s amazing how that one tip takes the pressure off and transforms the way I putt. Even though I don’t play enough to improve my golf game, that tip definitely helps me when I do play.
Investing for retirement is very similar. Yes, there’s a retirement savings “number” that each of us should figure out and shoot for as a bull’s-eye goal—whether it’s $500,000 or $5 million (I’ll tell you an easy way to come up with that number in one of the following tips). But in the decades that precede retirement, your job isn’t to obsess about the “number” as much as it is to keep the general target of financial security top of mind and to keep a positive attitude about accomplishing that goal.
Seven tips to make sure that you retire rich and on time:
1. Start an investing routine as early as possible. It might surprise you to know that the most important factor for investing success isn’t the investments you choose—it’s time. The more time you have to make contributions, even if it’s just $50 a month, the faster your retirement account will grow. Compounding interest is a powerful force that can make even the most inexperienced investor rich. So if you’re not in the retirement investing game yet, you’re burning valuable time!
2. Choose diversified investments. Having a mix of investments lowers your risk because it’s not likely they could all go bust at the same time. For example, you need enough cash for emergencies, bonds for steady income, and stocks to fuel your investment growth. Read chapter six of my new book, Money Girl’s Smart Moves to Grow Rich, to find out what percentages of the different asset classes you should own.
3. Wipe out your expensive debts. Paying high interest for loans or credit cards is like running the heat during the winter with all your doors and windows wide open—extremely inefficient! Make a plan to get rid of your expensive debts and free up money that you can contribute to a retirement fund instead.
4. Increase your savings rate each year. When you make a conscious decision to cut back expenses and to save and invest more money, you’re buying one of the greatest gifts you can give yourself—a secure and happy financial future. You might be able to retire early or to start a second career with your financial freedom.
5. Don’t withdraw money from a retirement account. Your investments can’t work for you if they’re not invested! Plus, in most cases, you lose money by having to pay taxes and early withdrawal penalties. Find out more about the consequences of taking a withdrawal or a loan from a retirement account in a previous article I wrote.
6. Never fall for a scam. Before you invest, make sure you fully understand a company’s business model, products or services, and legitimacy. Being an educated investor is your best defense against falling prey to fraud.
7. Use a retirement planning calculator. Visit AARP.org or choosetosave.org and enter your information in a retirement calculator to find out how much you should invest each month in order to accumulate a nest egg that’s big enough for your dream retirement.