Whether you’re 40 or 4 years from retiring, the financial steps necessary to retire aren’t that different. Besides the obvious ideas of: save money and cut expenses, planning for retirement can often feel impossible. After all, there are so many variables and things to consider. While SDPEBA (and their staff of very talented and appreciated writers) cannot exactly advise you on what to do, they certainly can ask someone who can.
Paul Dunicliffe is a financial advisor and the founder of Lago Wealth Management and he agreed to sit down and talk with me—I mean—with our team of talented writers about what he would tell someone who is looking for guidance on how to retire.
When you’re Just Getting Started
Managing finances looks way more complicated than it actually is. That’s not to say that financial planning, investing, or retiring is easy, it takes effort! There are just plenty of resources, tools, and people out there who can help so you’re not exactly reinventing the wheel.
When you’re getting started, do your research and find out what resources are available to you. Maybe you want to work with your bank or financial planner or an advisor who can help you manage investments.
Whether you’re working with an IRA, an index fund, or something completely different, it is important to set clear goals. Paul splits retirement goals into needs, wants, and dreams. He recommends you sincerely consider the cost of each of these and what it’ll take to be able to afford them.
By keeping those figures in mind, you should be able to estimate exactly how much you’ll need to save by the time you hit retirement!
Initial Priorities
When you’re just getting into the workforce, you should first work on clearing away any debt you might have and then become financially stable enough to start saving right away. Paul made it clear that once you can start saving, you should aim to have at least six-months of livable income in your savings account.
That livable income doesn’t have to be 1 to 1 with your current income (although that’d be a safe bet), it needs to be enough money to cover your food, rent, and whatever other financial obligations you need to meet.
Once you’ve hit that threshold for saving, you can start looking to utilize other options—such as investments, IRA’s, and other tools that make saving more lucrative.
When it comes to your 401k, Paul suggests you max it out as soon as possible and that when you have the option between “safe” and “aggressive” investment options, choose aggressive. Reason being, compound interest/investments allow you to make exponentially more money.
If your company offers matching for your 401k or any other retirement plans, you should definitely consider them, since that is essentially an easy way to double your investment.
Quick Tips
Paul also offered some great general rapid-fire advice for people who are apprehensive/worried about their road to retirement.
The first is to make managing your finances a habit! The more you integrate it into your schedule, the easier it’ll be to hit your goals. The next is to live beneath your means, which, yeah, might sound like common sense, but by living beneath your means, you can put more into your savings, which will pay dividends in the future!
Paul also suggests that whenever you get a raise, take stock of your investments. Maybe you can put more into your IRA, or maybe you can set aside some money for investing, or start auto-depositing parts of your paycheck into a savings account. Which brings me to Paul’s final piece of advice, if you find yourself constantly dipping into your savings, consider setting up that account with a different bank. By doing this, you’re literally keeping it out of sight, and thus hopefully, out of mind.
When you’re a Few Years from Retirement
If you’re looking to retire in less than 10 years, you might feel like there is nothing else you can do to add value to your retirement fund, but there is actually plenty you can do at the 11th hour to help set you up for success.
Take Stock (literally)
First, you should have a realistic conversation with yourself. Ask, “will/do I have enough to retire?” Ask yourself “where are my funds going to/coming from?” Are they from investments, savings, a pension, or something else? What costs do you still have? Obviously, you’ll still need to pay for your medical bills, housing, food, but what about luxuries? Trips, vacations, etc.?
Do the math or talk with an advisor. Will you be able to sustain your lifestyle until you’re 95? Are you planning on leaving behind an inheritance? Will you be able to live comfortably with your current savings/plan?
If not, ask yourself, how much longer will you need to work? Or consider how you can realistically reduce your expenses. Again, think about your needs, wants, and dreams, which of these are feasible? What are you willing to sacrifice in order to have a sustainable plan?
Finally, start looking into your investments. Do you need to pull money out of your investments or savings in order to have the lifestyle you want? Just remember, you’re still a long-term investor. If you retire at 65, you could have another 30 years of life to pay for. At the same time, that’s 30 more years of compound interest. Ultimately you need to consider the risks of what you do with your money, do you have a backup plan to protect you?
Setting Yourself Up for Success
Once you know the status of your funds, check them frequently to make sure you’re able to hit your goals. Now is the time where you need to be rigid with your plan, but flexible with your goals/funding, just in case something comes up and you need to divert your funds or cut buying a pair of gold-plated jet skis from your bucket list.
You should also make sure you transfer any risky investments into safer and more stable options. No decision should be shortsighted and every choice you make should relate back to your goals and plan.
Common Mistakes
Like humor, retirement is all about timing. Which is why it makes sense that the most common mistakes are starting to save too late or retiring too early. There is no hard and fast rule concerning how much money you should have before you retire or what age you need to stop working by. That means you need to seriously consider your lifestyle, expenses, and funds and make the best choice for you.
Another common mistake is making risky decisions when you’re older. Making big investments in your 50s isn’t always a bad thing, but it is a risk. Consider the long term affects of everything you do. Ask, “how will this help me achieve my needs/wants/dreams?”
And a final mistake to consider is overspending. Sure, that might be easier said than done, but Paul put it best when he said “you don’t need to keep up with the Jones’s.” Trust me, you can go without a weekly lobster thermidor. This all goes back to his advice, “live beneath your means.” There’s no sense in buying the nicest house, car, and all sorts of gizmos—especially when you’re close to retirement, use the funds instead to set yourself up to live happily and comfortably without ever having to worry about heading to the office ever again. There isn’t a sportscar out there that’s worth more than finally putting an end to watercooler conversations.
Note: This is not financial advice. I mean, it is financial advice, but it is general advice. If you want real advice, please talk to a financial planner like I did. Everyone’s life, finances, and goals are drastically different. That being said, this is a good jumping off point for thoughts/plans around retirement. It just isn’t a one-stop-shop that has all the info you need. This is barely even the tip of the iceberg!
Additionally, while Paul Dunicliffe offered his expertise for this article, he is not directly affiliated with SDPEBA. And while we appreciate his support and dedication to helping San Diego Public Employees immensely, this article is not an endorsement, just a prompt to help you start thinking about retirement.