Whether your long-term financial goals are for retirement or saving up for that dream house, it can be tricky for most people to get a clear picture of exactly how they are tracking towards their financial goals. You already understand the importance of having a sound financial plan in order to anticipate for the future; however, the whole process of monitoring your investment portfolio is no easy task, and improperly tracking your progress throughout the years could lead to some unwanted surprises down the road. CRM2Plus simplifies financial planning and takes the frustration out of this very important process. Our software allows the individual to track retirement plans and give a better outlook on your financial plans.
There are two things everyone should pay attention to before setting aside money for their long-term savings and investments.
First is looking at your debt situation. Do you currently have any high-interest debt outstanding? This should be the first thing to pay off at this moment to improve your situation. High-interest debt includes things like credit card debt (which can go upwards to 20% annual interest!) and maybe even your student loan debt or line of credit. You should pay off these high-interest debts before putting your money elsewhere, such as in an investment account or savings. The high-interest payments are draining your budget and hindering your ability to save. Tackle the debt first before moving on to saving.
Second, is establishing an emergency fund. This is a fund that will cover 3-6 months’ worth of expenses. Depending on how steady your income is, you can have less of an emergency fund. Expenses include your rent/mortgage, food, car, and other necessities. Keep the fund in something very conservative and liquid like a Guaranteed Investment Certificate (GIC) or a savings account. Remember, you are not trying to maximize your returns for this fund, but rather keep it tucked away as an emergency source of money in case something unexpected happens.
After establishing a strong basis for your day-to-day financial management, it can be a good time to think about how much income you want to have saved for retirement. If you already have savings in your retirement account, that’s just one step closer towards your goal. If not, you can always start the process now!
How much savings would you realistically want to retire with to be comfortable?
That determines how much you would need to grow your nest egg to sustain the type of lifestyle you want. For example, say you want to retire with $60,000 a year and assuming a conservative 4% compounded annual return, this means that you will need a nest egg of $1.5 million dollars (without accounting for inflation). Additionally, if you are in Canada, there are government benefits you will receive, from Canada Pension Plan and Old Age Security. These benefits may provide you with an additional $10,000 to $15,000 per year, bringing down the size of the nest egg you need to accumulate to roughly between $1.10 to $1.25 million dollars. Taking into consideration the government benefits that are available to you can truly make your retirement goals seem that much more realistic. If you decide that you want to do some part-time work during retirement, it can reduce the nest egg as well.
When do you want to retire?
Timing your retirement depends on a number of factors including lifestyle preferences and retirement plans, but most importantly, it depends on a balance of how much income you want to retire with and how much you are willing to put away as savings each month. For example, a 25-year-old that wants to retire at 65 will have 40 years to reach their nest egg goal, which will also determine how much they need to be able to save per month based on their retirement savings goals. On the other hand, if that same individual is tracking ahead of their savings goals with higher income, they may be able to retire a few years earlier.
These are some of the important questions to ask when trying to figure out how much to save for your retirement on a monthly basis. Starting the road to retirement today with a sound financial plan will put you in more control over when you can retire and the type of lifestyle you can afford to support afterwards. Put away money on a regular schedule and make sure it is an amount that you are comfortable to put away. Remember that you shouldn’t withdraw from your retirement savings unless it is absolutely needed since it is likely that you will incur early withdrawal penalties and be set back on your original savings goals.
Talk to an advisor to lay out a plan to ensure you can meet your retirement goals. (Our software is great for the financial planner to help your clients as well!)