Saving for retirement is a lot of work. At the start, that big number you're shooting for seems unreachable.
To illustrate what it’s like saving for retirement, I’ll associate it with buying a home.
Like buying a house, saving for retirement is a big task.
The average sticker price for a house these days is $200,000. With an average interest rate of around 4.5%, the total amount you’ll pay on a 30-year fixed rate mortgage is almost $365,000.
That pales in comparison to what most people have to have saved to fund their retirement. Not only that, but there are added psychological factors to consider.
When things go wrong with your house, you sometimes consider if it’s worth it.
The same can be said for investing for retirement. When the market drops, you want to get out and stop the bleeding, but most often, you are better off not making any changes at all.
When you start
In either case, the sooner you start saving, the better. When you buy a home, you have to put a certain amount down. The down payment. If you start saving for that down payment early, then you have to save less each month.
Same can be said for retirement savings. The more time you give yourself, the easier you make it. Additionally, having your assets invest for a longer period of time gives compound interest the ability to work for longer.
One of the most important things you can do for your home is to perform regular maintenance. With that maintenance (i.e. cutting grass, servicing HVAC, and cleaning) you can extend the life of your mechanical items in your home. This, in turn, costs you less money over the long-term.
The same can be said for regular check-ups with your retirement savings. You may set up plan, in the beginning, stick to it for a few years, review it, and realize that you are actually a little behind in your savings.
What’s more, as your investments ebb and flow, some assets classes will perform better than others. The most common case is when stocks outperform bonds. Through time, your investment allocation will start to get overly concentrated in stocks, which could harm you if you are a more conservative investor.
In both cases, you need people on your side to ensure the moves you make are for your best interest.
With regard to real estate, it’s your realtor, your mortgage lender, home inspector, and insurance agent.
With your retirement, it’s your financial advisor, accountant, and an attorney. Realistically, you only need the first one for help with your retirement savings, but having an accountant help you with taxes and your attorney help you with your estate planning are crucial parts to an overall financial plan.
Sometimes, however, no matter how much planning and saving you do, the end result and what it takes to get there has a bit of luck involved.
For buying a home, you can take out a mortgage during a period of
When investing for retirement, if you start your journey at the peak of a bull market, the odds of you having the same sized next egg as the guy that started a year later, at the very bottom is slim to none (all else being equal).
Whether you’re talking about saving for retirement or saving for a house, there are simple and important steps you need to take. Start early, create a plan, assemble a team, maintain regularly, and get lucky.
To learn more about saving for retirement, drop me a line.