One of the keystones of financial responsibility is planning for the long term. This kind of planning starts with anticipating your family’s needs over the coming months, but it extends to expanding your career opportunities, purchasing a home, and establishing long-term savings. One primary goal of any successful career is to prepare for a safe, comfortable, and independent retirement — but the big question is how to get there.
Although many people have a general idea of what to do, such as “save money,” the specifics are often hazy. It’s always a good idea to clarify what needs to be done to get to that place of financial independence and comfort. The journey begins at the start of your working life, and it’s never too late to start catching up. Forbes suggests that your 20s are the best time to start saving but also recognizes that many Americans don’t begin the process until later. Below, we’ve assembled a roadmap with concrete steps to a secure retirement.
First Steps Toward Retirement
If you’re working towards retirement from early on in your career, one of the biggest factors is how consistent you can be with your savings. Even small amounts accumulated over time can turn into significant savings when you carefully tend the amount and resist the urge to pull it out. Therefore, the first step is one of mentality: Separate spendable income from what you’re saving for the future.
Review your fixed expenses, your likely expenses, and the amount that you can commit to saving. Ensure that there’s a portion left over for discretionary spending, but hold to that savings amount. While life may have its surprises for you, dipping into retirement savings should be a last resort. The longer your accounts can accumulate value, the more you’ll have when you retire.
That general policy can hold true regardless of where you work. It can also help to have a designated IRA that you manage on your own and can contribute to. The IRS outlines several ways that you can complete this process so you don’t lose the advantage of having saved at your previous job. Following these procedures can prevent unnecessary penalties and taxes.
At the same time, it’s important to increase your career prospects by gaining more experience, skills, and credentials. This kind of investment in your prospects is harder to quantify but remains an essential part of retirement planning. Whether you stay with one employer or move between them, try to keep your eye on your future and make saving a priority.
Establishing Independence: Keeping What You’ve Saved
With a general game plan of building savings and improving your career, there are several other steps you can follow on your roadmap. Take advantage of every program available from your employer, such as account matching. Even indirect programs such as tuition reimbursement can improve your retirement savings over the long term by enabling you to obtain new credentials that allow you to command a higher salary and, in turn, put more towards retirement savings.
As your accounts themselves grow, you can make the decision whether to administer the accounts directly or leave them in a management company’s hands. Financial firms such as Fidelity often have funds or buckets of stocks that you can buy into that are managed by their financial professionals. Separately, private and corporate wealth management firms may also have the resources to manage your funds and help them grow.
During the earlier part of your career, you can put some of your money into higher-risk, higher-yield investments and newer stocks. By keeping the investments modest, you may reduce your exposure but still reap significant rewards if the gamble pays off. Overinvestment in such risky ventures, though, can reset your progress or put you back years.
As you get closer to 60, it’s time to start turning those investments into assets that can give you reliable disbursement. Knowing what kind of income to expect on a monthly basis can give you the comfort of genuine financial independence. Key assets in this category include annuities for financial assets and reverse mortgages for real estate. Both of these leverage the equity and wealth that you’ve assembled to provide security and freedom during retirement.
Resource Links
“Fidelity Managed Accounts” via Fidelity
“Why Retirement Planning Should Start in Your 20s” via Forbes
“Rollovers of Retirement Plan and IRA Distributions” via the IRS