The journey to retirement should start with the first paycheque. (Graphic: Pixabay)
Planning for RETIREMENT can be a long game — doing what is necessary to ensure success. It’s the small price you pay or the sacrifice you make today to make your life easier in the future.
Losses, failures and setbacks can occur along the way to retirement peace of mind, but it’s important to remember that retirement is not a destination but a journey.
Retirement opens another chapter in life and investing your money for sustained growth. Learning new skills, social engagement and hobbies make life more meaningful for retirees. But playing the long game requires an early start. Get out of the blocks quickly to get a head start. Spend less than you earn and be sure to save and invest. Those who start contributing to a retirement plan in their twenties will soon recognize that the path to retirement will become easier and more rewarding if they stay the course. The journey to retirement should start with the first paycheque.
Since there is a long game, it follows that there is a short game. This is the direct opposite of playing the long game. The short game is about immediate gratification – spending now and tomorrow will take care of itself. Playing the short game is a surefire way to spend more than you win. Spending years playing the short game can drain financial resources as time gets tougher. Initially, the cost of the short game seems small, but as time passes and the amounts accumulate, the law of accumulation actually highlights the considerable cost of the short game. Inflation eats away at the purchasing power of the funds earned and the sums of money buy less and less. At this point, short game investors realize that they have spent years playing the wrong game. saving for retirement.
To understand the long game, consider the example of a 25-year-old who contributes $5,000 per month to a retirement plan and a 40-year-old who contributes $5,000 per month at the same rate, with a average interest rate of 8%. hundred a year. The 25-year-old would accumulate around $23.6 million at the normal retirement age of 65. However, the 40-year-old would only amass around $6 million by age 65. They started contributing to their retirement 15 years apart. Note the difference in time played in the long game. The longer your money is capitalized, the greater the return on investment.
Playing the long game for retirement will lead to a higher pension payout. Saving and investing for the future does not mean giving up the joy and pleasures of life. It requires choosing to be disciplined in saving, investing, and spending. Just as a balanced diet is important for a healthy life, a balanced financial plan is also necessary for a successful retirement. A good guide to the long game is the 50/30/20 budgeting formula. Fifty percent should be allocated for necessities such as a mortgage, rent, electricity and food. Thirty percent of your income should be allocated to travel, shopping and health care. The remaining 20% should be reserved for savings, retirement and investment. The less debt you have, the more funds there are available to invest. Keep debts to a minimum. When it comes to travel, entertainment, and shopping, review your credit card statements and see what expenses can be reduced or waived. Check your pension statements. You may need to increase your retirement contribution or increase your long-term investment. Also, have enough cash for emergencies. Do you know how much money you will need for your retirement? Since you can spend up to 30 years in retirement, calculate the future value of your current income. Ideally, you should retire at at least 80% of your pre-retirement income. Multiply the result by 30. The result will indicate how much funds need to be accumulated to provide adequate income for your retirement years.
For those planning to retire before age 65, an adjustment must be made to increase contributions to pension plans and long-term investments, as more years will be spent in retirement. Some people may need to make adjustments for mortgages and other debts in retirement and therefore long-term investments will be required to provide additional income in retirement.
As the cost of living rises in retirement, stocks have proven to be the best weapon against long-term inflation. Renting houses, selling properties, and investing in real estate investment trusts can also provide additional income in retirement. Invest in things that add value to your life, such as knowledge, finances, and relationships. Play the long game, invest for decades. Live the life of your dreams.
Grace G McLean is a Financial Advisor at BPM Financial Limited. Contact: gmclean@bpmfinancial or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. Email him at livingaboveself@gmail.com
The longer your money is capitalized, the greater the return on investment.