When creating a retirement strategy, saving and investing for retirement are one side of the equation.
On the other side is spending during retirement.
Regardless of your age, this is certain: In order to build a nest egg that will cover your retirement expenses, you have to manipulate two things: (1) your lifestyle after retirement and (2) your saving and investing before retirement. The two have to make mathematical sense.
If you don't already know how much the retirement lifestyle you want to have will cost, there are several online calculators that can help you come up with an estimate. So imagine the retirement you'd like to have, and use that as a starting point for your calculations.
A retirement adviser should be able to help you if you're having a difficult time figuring your savings path or retirement needs.
If your nest egg isn't as big as it needs to be, and projections don't indicate it will grow enough, what do you do?
Consider cutting back on non-essentials: cable, telephone landline, house cleaning service, eating out, shopping, gym membership, dry cleaning, and salon visits, just to name a few. You may be able to reduce gas consumption by driving less. Take a staycation rather than a vacation this summer, and find a part-time job or freelance work to supplement your main income. Channel all your extra cash toward increased 401(k) contributions. You may not be able to afford big 401(k) contributions right now, but you can plan to gradually increase your savings rate on a schedule. It's also a good idea to bump up your contribution each time you get a raise.
Establish an asset class allocation that's appropriate for your risk tolerance, timeline to retirement, investing preferences, retirement goals, and the economic conditions. Doing this will ensure your portfolio fits with your life, your goals, your personality, and your plans. Furthermore, it's possible you could increase your 401(k) earning potential merely by selecting better mutual funds from each asset class in your allocation.
Even two or three extra years of full-time employment can make a tremendous difference for your nest egg. You're continuing to contribute more dollars to your 401(k), and you're not taking withdrawals during those years. The net effect will be a larger nest egg than you would have from retiring sooner. Plus, you're reducing the total number of years your retirement savings will need to last.
It's never too late to work on your retirement equation and create a retirement strategy. Play with the numbers so your projected savings are equal to you projected retirement needs. The worst thing you can do is stick your head in the sand and ignore an impending problem.
Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.
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