You’ve probably landed at this article because you were searching for when is a good time to start planning for retirement. The short answer is now! In fact, it’s advisable for any person to kickstart the journey when they’ve gotten their first paycheck. Beginning ahead also means giving yourself more time to increase your savings slowly and build good habits that your retired self will thank you for in the future. Without further ado, let’s dive into the ways you can start planning for retirement from your 20s.
Figure Out Your Retirement Spending
While it’s good to start planning for retirement early, you will need to set the basics right. One of the foundations is to estimate your retirement spending so you can determine the rough size of your retirement portfolio.
You will also have to take into account any unpaid mortgage when you hit retirement age, rent if you were to move to a senior living community, and should unforeseen medical expenses occur. Never underestimate your future expenses because you may easily outlive your portfolio. Similarly, don’t overstate your expenses if you don’t want to live a rigid, unpleasant retirement life in your 60s and beyond.
Set a Budget and Track Your Daily Outputs
In order to transfer money from your salary to your retirement sum, you will need to manage your present-day outputs. This is where budgeting comes into the picture.
Set a satisfactory amount you need to spend each day and record your everyday spendings in an excel spreadsheet or on your preferred platform. The rule of the thumb is to spend less than what you make. Ideally, it should be around 85% of your paycheck if you need a rough number to get you started somewhere.
Deal with Higher-Risk Investments When Younger
A simple rule to follow is that should you have more than 30 years from now till retirement, you can afford to deal with higher-risk investments.
This signals that the majority of your assets can be allocated to stocks that can outperform securities like bonds over the long term. By long-term, we’re referring to periods of more than 10 years. On the other hand, as you’re nearing retirement, it’s time to shift your investments to less volatile options. There’s also a more secondary need to care about inflation by that time.
Avoid Getting into Debts and Settle Existing Ones
When you’re young and not thinking about retirement, this could have a significant impact on your mindset. Consumer debts like car loans and credit cards often have high-interest rates which may rack up debt really fast through the years.
Don’t get into the habit of making big purchases without sparing a thought for your finances. Remember to spend within your means and don’t take out a loan for an unnecessary purchase. Those with existing debts should also try their best to clear them as soon as possible.
As you’ve already read from the introduction, retirement planning should start right away! There’s no need to wait till you’re in your 30s or 40s to begin preparations. Follow out the tips listed above if you do not know where to start.