When it comes to saving for retirement, sooner is always better. But even if you’re already well into your career, it’s not too late to form some useful habits. Let’s take a look at five very important habits everyone should consider to get on the road to a more financially secure retirement.
- Have a Spending Plan, and Stick to It: Remember that line your middle school teachers and parents used to pull? “Failing to plan is planning to fail.” Well, as annoying as it is to admit, it’s really true! Many people resist forming a spending plan because they perceive it as restrictive. However, the opposite is really true; when you have a plan, you gain a sense of freedom. You don’t have to agonize over a purchase decision, because, as long as you stick with the plan, you have the freedom of knowing it’s okay. Another benefit of having a plan is that it is excellent training for living in retirement, when most of us will be operating on a smaller budget. The discipline of budgeting teaches us to know the limits of our resources and allocate accordingly.
- Utilize Employer Matching: Many companies will match their employees’ contributions to certain types of savings and retirement plans. If you are fortunate enough to work for one of these companies, you should seriously consider contributing up to the maximum your employer will match. Think of it as doubling your money–immediately. And over the years between now and retirement, the compounding effect on that “free” money can add significantly to your retirement bottom line.
- Rollovers Are Your Friend(s): This is especially important to remember in the era of frequent job changes. Very few who have entered the workforce in the last ten years or so can realistically expect to work for the same firm for their entire career. We change jobs more frequently, which also means that many people forget all about the 401(k) they had at their previous place of employment. The result is either small accounts scattered all over the place–which makes it much more difficult to assess your assets and investment options–or simply cashing in the plan when you leave the company, which reduces the amount you’ll have in your retirement fund when you really need it. Instead, utilize rollovers to consolidate your accounts and retain the power of compounding on a tax-free basis.
- Know Your Options: There is no one-size-fits-all retirement strategy. Depending on your age, time until retirement, asset mix, and other variables, you may have a number of viable choices for both the timing and the funding of your retirement. The more you know, the better your decision.
- Start Now: This is the most important hint: no plan will help you until you start using it. The central, crucial factor in retirement planning is time. The earlier you start, the better your chances of enjoying a comfortable retirement lifestyle.
If you have a young person in your life, encourage them to implement these five habits now. They will be thanking you when they retire.
And if you have questions on these five habits or other wealth management topics, contact your financial advisor to discuss them with him or her.