Retirement is something that may seem far away at times and some young people do not even think about it even once a year. Truthfully, retirement is one of the most certain events in our lives. It must come one day. Either by choice or law of nature. Furthermore, the fact is that we live a fast-paced lifestyle, and the years can go by in the blink of an eye.
This is why it is essential to start thinking about preparing for retirement sooner than later. Poor financial planning can force you to keep working for longer. While you may feel like you can work forever, this is not always true. There comes a time when you may want to rest and enjoy retirement.
If you have not financially planned for retirement from an early stage, you may find it hard to make ends meet in your golden years.
Here are some simple ways you can start financially preparing for retirement today.
1. Save 20 Percent of Your Income
One of the most effective strategies is to save 20% of your income using the 50/30/20 budget rule. According to this plan, you should spend 50 per cent of your income on your needs, 30% on your wants, and 20% goes into savings.
This is a useful tool for saving money for retirement or even a down payment on a property. It is essential to look for ways you can save money every day. This includes controlling your spending habits and being financially smart.
2. Set a Savings Goal for Retirement
One easy way to determine your saving goal for retirement is the rule of 25. Simply just multiply what you spend annually by 25, and you should have an idea of how much money you will need to retire. For example, if your annual expenses are $40,000, multiplying that by 25 means you need a saving of $1 million to retire.
Another great way to help you estimate your goal is using a retirement savings calculator. It will help you identify how much you need to save each month to achieve your goals by the time you are eligible for retirement.
3. Identify Debt to Pay Off
One of the first steps for increasing your savings is to first identify and try to pay off any high-interest debt you may have. This may include things like your credit card payments.
After identifying and taking care of high-interest debts, you can focus on other financial obligations such as your mortgage and student loans.
Once you are relatively debt-free, it will become much easier to start planning and saving for retirement.
4. Build an Emergency Fund
Emergency funds are a necessity for most people in today’s world. Unexpected expenses can cripple your financial health and even set your retirement back substantially. This is why it is important to have at least 3 months’ worth of your income set aside in an emergency fund.
Suppose you do end up with an unforeseen expense. In that case, you can dip into your emergency fund instead of your retirement savings. A high-yield savings account is the perfect platform for your emergency fund.
This is because these accounts earn a higher annual yield compared to other savings accounts. These accounts are also FDIC- insured and usually have no balance requirements or monthly fees.
5. Prepare for the Unexpected
Another thing you should consider even before retirement is the procurement of life insurance. Suppose you have a spouse or other people that depend on you. In that case, life insurance can be very beneficial.
In the unfortunate event that you pass away, the life insurance policy can ensure your loved ones are still financially taken care of. There are companies now offering life insurance even in the Gambia such as the ELAC. You can also learn more about life insurance on Manulife.
The Bottom Line
These are just some of the ways you can make it easier to financially prepare for retirement. The most important thing is to start early, as time will enable you to benefit from the compound interest which can help you achieve your savings goals. You can always reach out to a financial or insurance professional to help you get started today.