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How to Prepare for Retirement

2012 April 30
by Charlie

 A couple of days ago when I was running over my lunch hour I came upon a road sign that said, “Speed Limit 35″. Funny thing was it was tracking me and not all the cars that were going by. So I decided to have some fun with it. I started to speed up and was able to get it up to 12 miles per hour. Not bad, as I grinned at my fun accomplishment. In looking at the sign it got me thinking about retirement. About how it’s important to have benchmarks or road signs along the way to track one’s progress. We have signs for everything else, but what are you doing to track your retirement?

Since leaving college in 1999 I was completely motivated by my late Economics teacher, George Frangedakis at Briar Cliff to continually track my financial progress. To this day, I still remember when he charted out how you can invest $500/month from 22 to 30 years old, and have over $6,000,000 by the time you were 65 (that is based on him saying the stock market could earn 12% interest – ha!). With this motivation and teachings here are few of the key points to track in terms of your own retirement progress.

  • Current Age – what is your current age? If you are younger, then compound interest is on your side. Do everything to start saving early (especially if you’re in your 20’s & 30’s). There are reports that Albert Einstien once said, compound interest to be the most powerful force in the universe.(the verdict is still out on this claim! :) )
  • Number of years to retirement – what is your target retirement date? Are you shooting for a target year (ex: age 65) or are you shooting for $ figure? If you have X number of years to retirement, and you know your target savings amount, then you can use a lot of these handy calculators to figure out how much you need to save (calc 1) (calc 2).
  • Monthly Savings – how much are you saving per month? 5%? 10%? 20%? Why? Is this just the percentage you are comfortable with or is there an overall strategy to your saving percentage? Start by using some of the above calculators and determine what percentage savings is required to get to you retirement goal. One of my favorite calculators for figuring out my required percentage savings is bankrate’s retirement income calculator.
  • Debt/Re-occurring expenses – have you looked at your debts lately? What debts are you actively “snowballing” to be able to “live a life like no one else“? Something I do with my family is continually look at what are our reoccurring debts or expenses that we can cut. Most families don’t pay attention to these automatic expenses, because they are continually being taken from their account. These reoccurring expenses are like a thief in the night to your checking account. It’s especially important to drive down these expenses between 30-60 to maximize your savings.
  • Target $ amount (at retirement) – how much do you need to retire comfortably? One of the great calculators I use is Firecalc. Firecalc allows you to enter in your 1) estimated annual spending, 2) estimated portfolio balance at retirement, and 3) number of years in retirement (how firecalc works). Then it runs 111 possibilities of 30 year periods (from 1900 – present) and shows you how each of the 111 scenarios plays out. It’s gives a great insight into the worst-case and best-case scenarios. That is the thing about retirement…you never know if you’ll be retiring into a good or bad period.

Here are a few great examples of people who are tracking their financial progress publicly on their blogs. It’s another great use of a blog to help you spend the time to figure out how prepared you are for retirement and hold you accountable.

How do you track your progress? How are you preparing for retirement and ensuring you won’t run out of money?

 

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Charlie

An IT professional, Charlie also buys and sells liens, lives on the cheap, runs marathons and helps to run his family farm. In his spare moments, he raises 3 children, does the dishes and writes one post a week. His former blog, Frugal Retirement Plan, has been cited by US News and World Report.

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