Hazy on the horizon or just around the corner? Retirement is inevitable, and no matter how long you have left to wait, it´s always best to be prepared.
If you want to be sitting on a pretty sizeable nest egg by the time you leave work, it is best to start sooner rather than later due to the power of compound interest. That being said, it´s never too late to start putting together a financial strategy to increase your savings so that you can pursue the retirement you have long envisioned.
First of all, your primary planning step is to figure out how much you need for retirement. You should make the estimate based on your current income, expenses and spending habits and how you believe they will change during retirement. This way it will be easier to create a financial plan as you will have a clear objective.
If it´s on offer, grab the 401(k) or 403(b) Company Match with both hands. Check with your workplace to ensure they, and you, have a retirement plan and possibly a company match. If you´re lucky enough to be enrolled in such a pension scheme, begin by at least contributing as much money as your employer does. Say your company pays up to 5 per cent of your salary and matches every pound you contribute if you don´t add your 5 per cent you miss out on free money. For example, if you earn £50,000 a year and invest £2,500 into your 401(k), you automatically get a £2,500 bonus from the company. For the best financial gain, contribute up to the maximum amount allowed by law to your retirement savings plans.
Of course saving is an adequate financial strategy for anyone looking to have stability in their later years, however, sometimes the power of investing is overlooked. You could potentially be striding towards retirement with a constant source of multiplied money. But investments must be chosen with an end goal in mind: income, growth or safety. Do you need your current income to live on in your retirement years? Growth so the investments can provide income later? Or the safety of preserving your principal value your top priority?
If you´re leaning towards investment, determine how much you can realistically invest, whether it´s a lump sum or regular monthly contributions. Some index mutual funds allow you to open an account and automatically transfer monthly instalments from your current to your investment account. This reduces a significant amount of risk, but it also reduces your options. If you´re in the position to offer a lump sum, you might want to think about not putting all of your eggs into one basket. This will minimise the risk of choosing just one investment.
Many novice investors tend to grab the first investment opportunity offered to them with both hands. However, a shrewd investor creates a thorough plan which includes a list of all potential investments that will help them meet their goal. It is important not to rush into these decisions. Careful consideration should be taken to fully understand the pros and cons of each so that you can narrow your final chances down to a few that you feel confident about.