Retirement Planning Steps to Start Now
Do you really need to start thinking about your retirement now? Well, the short answer is yes. That’s why we’ve put together these 5 retirement planning steps to get you started.
According to the Sydney Morning Herald, a global survey shows that Australians expect to spend 23 years in retirement, but that their money will most likely run out after only 10 years. So the more you save now, the more time your money has to accrue interest or benefit from investments like mutual funds and bonds. As the experts say, the earlier the better. So, rather than putting off saving for your retirement, you can start now and be ahead of the curve. Even if it’s only a small amount every month, each bit helps. By gradually adding to your pot of money and paying off any outstanding small loans, your savings will grow—and you’ll have less to worry about in the future. Check out our 5 retirement planning steps to start planning for your retirement now.
- Visualise your future
- Make a monthly contribution
- Choose where you’ll invest
- Stay the course
- Monitor your investments
5 easy retirement planning steps
1. Visualise your future
The first retirement planning step you need to take is to start thinking about where you want to be. Before you can start saving with true intention, you need to be able to envision your retirement. Do you plan to do a lot of overseas travelling? Are you looking for a quiet life in a relatively inexpensive area? By what age do you hope to retire?
By putting together a vision for your retirement, you can estimate the amount of money you will need.
When thinking about your retirement, ask yourself:
- How do I envision my lifestyle in retirement?
- Where do I plan to live?
- What extra expenses might I have in retirement? (i.e. health care, trips to see family)
- Will I live similarly to how I live now? Or more extravagantly?
- How much money will I need per month approximately to match my vision?
- How many years will I likely be retired?
Question #5 is by far the most important. Having an estimate of your monthly expenses during retirement will give your entire savings plan a vision. The easiest way to come up with an answer is to determine your current monthly budget, and then decide if you think you’ll need more or less than that amount.
To determine your goal retirement amount (i.e. how much you’ll need to save overall), consider your answer for #6 (how many years will I likely be retired?). Multiply your monthly need estimate by 12 for each month of the year. That’s your yearly cost of retirement. Once you have that yearly cost, multiply it by the number of years you plan to be in retirement, whether that’s 20, 25, or 30. Don’t be too concerned with making it precise. You don’t want to hold yourself up from saving at all, just because you’re not exactly certain how much you’ll need.
Also, while you are budgeting for the future, be sure to take into consideration any outstanding debts or cash loan repayments you currently have. You may even want to take out a debt consolidation loan to save on interest and monthly fees so you can reach your retirement saving goals earlier.
So, once you’ve got your estimate for your retirement, move on to retirement planning step #2.
Learn more: how to create a personal budget
2. Make a monthly contribution
Now that you have an estimate of how much you’ll need in retirement, come up with your plan on how you’ll chip away at that overall cost.
Don’t worry, your retirement number is probably pretty large. Remember that you don’t have to save that total amount of money. Interest and investment returns will help you earn more over time. That’s why it’s so important to start saving sooner rather than later.
Good investments give you an average of around 7% ROI (return on investment) each year. If you compound that over 20 or 30 years, you’re making a ton of extra money without any extra work.
So, start now by deciding how much you’ll contribute toward your retirement on a monthly basis. Is it $50? $100? $200? Figure out how much you can spare from your monthly budget. Keep in mind that saving some money is better than saving no money at all.
Open a savings account to plan for your retirement
The easiest way to save without having to think much about it is to set up a direct deposit into a separate account. For example, part of each paycheck can be automatically put into that account. You won’t have to deal with remembering to save every month, and you won’t use that money to splurge on new purchases, like new clothes or a concert. In other words, your retirement money will be safe.
3. Choose where you’ll invest
Retirement planning step #3 is to invest! Simply putting money into a separate account will not yield you exceptional returns. Maximise all of your retirement savings by choosing a type of investment that will give you a sizable annual return, ideally above 4% annually.
In addition, make sure you diversify your investments. Don’t put all of your retirement funds into the same type of stock or bond. Maintain a diverse spread of investments to ensure you maximise reward without putting yourself at undue risk.
Investment opportunities for your retirement include:
- Superannuation accounts
- Capital growth investments (like shares and investment properties)
- Interest-bearing accounts
- Term deposits
- Managed funds
If you don’t feel comfortable with financial investments and don’t have the budget for a financial advisor, simply stow your money away in a high-interest savings account, like one with 1-3% returns.
4. Stay the course
Once you’ve decided on your monthly retirement allocation, be sure to stick to your plan. Being consistent about saving over the course of several years is one of the hardest parts of ensuring you have enough when you retire. Just remember: consistency adds up.
Try not to cancel or modify your direct deposit, unless you’re changing it to a larger monthly contribution, of course. It’s tempting to tap into the money you’re putting toward retirement, but there are other ways to get cash if you need it – like a small personal loan. So, don’t change your plan or your direct deposit. Stay the course, and it will pay off in the long run.
5. Monitor your investments
The final retirement planning step is to check your retirement savings and investments are performing. Every now and then, log on to your online account and see if you’re making the returns you should. Adjust your investments and contribution amounts as you see fit, ensuring you’re keeping in line with your vision.
If you need assistance with figuring out the best investments, you can hire a financial advisor, or educate yourself through podcasts and our Swoosh Money Blog. We’re here to help you achieve financial freedom.
FAQs about how to plan for retirement
What is a good retirement income?
This ultimately depends on your current financial situation and how you envision your retirement. We’ve explained how you can create a rough estimate for what you need when you retire in step #1.
How do I begin to plan for my retirement?
As we’ve mentioned, the first retirement planning step you need to take is to envision what your retirement will look like. Consider how you’ll live, what your monthly expenses will be and if you want to travel.
At what age do most people retire?
According to the Australian Bureau of Statistics, the average age people intend to retire is 65.5 years in Australia.