Tax season is finished and summer is finally in full swing, making these warm Ohio months a perfect time to review your retirement plan. We all want to retire at some point, but how many of us confidently know that they are on track? How positive are you that what you set aside each month, how it’s invested, and how it will someday be taxed, will be enough to fund your 30+ year vacation?

To make sure you’re doing everything you can to get on track for your retirement, we are giving you our top 5 tips to help you better plan for your future retirement.

Tip #1: Stop Procrastinating

Albert Einstein once said that the most powerful force in the world is the power of compounding interest, and I agree. The same way water can carve out the Grand Canyon, systematically investing on a regular basis can help you build the nest egg you need to retire. The key is starting now. The sooner you start saving the larger your savings will be; it’s a snowball effect. Take a look at the examples below to see the cost starting later will have on your future.

Example 1: Bill and Jane begin saving $200 a month for their retirement at age 30. Assuming they average an 8% return on their investments over the next 35 years, that $200 monthly contribution will grow to be worth $458,776 when they are 65! Assuming they don’t increase their monthly contribution with inflation.

Example 2: Bill and Jane begin saving $200 a month for their retirement at age 40. Assuming they average an 8% return on their investments over the next 25 years, that $200 monthly contribution will grow to be worth $190,205 when they are 65. Assuming they don’t increase their monthly contribution with inflation.

So the cost of waiting 10 years in this example is $268,571… I would say that is a tangible difference.

Tip #2: Know Your Budget

When saving for your long-term goals it’s imperative to have control over your household budget. Take time to evaluate where your money is going on a monthly basis and ask yourself if you really need to spend it? If you are having a hard time setting aside money on a regular basis make some cuts, trim the fat and turn your bad habits into opportunities to enhance your life. I know money doesn’t buy happiness, but my guess is you will feel better at the end of the day with more savings.

Tip #3: Take Advantage of Employer Benefits.

If your company offers a 401(k) or another retirement account with a matching contribution, just do it. I can’t say enough good things about contributing to your company sponsored plan. At the very least you need to contribute enough to receive the full matching contribution from your company. This is free money and it is called an employee “benefit” for a reason. Take advantage of this benefit and use it to accelerate your savings.

Tip #4: Know How Much You Need

Knowledge is power in financial planning, and understanding how much you are going to need to live off of in retirement is critical to know how much you need to save in order to achieve your retirement goal. A ball park estimate you can use would be to take your current standard of living and multiply it by 85%. This estimation is a ball-park figure and may not work in every situation; however, for the sake of simplicity it will give you a fairly good idea of what your standard of living will be when you want to retire. The only other step you need to do is increase it with inflation in the year you retire.

For example: Bill and Jane are currently 55 years old and maintain a standard of living of $100k per year. At age 65 they need $85k per year to live the same lifestyle they are today. However, in ten years from now that $85k is actually going to be more like $114k because the cost of goods will only increase over time. Now that we know how much Bill and Jane need each year, it’s time to see how much they will actually need to have saved before retiring. Without going into too much detail, Bill and Jane need roughly $3,870,000 saved by day one when they retire. Sounds like a lot of money right? So if this scenario sounds like you, then it’s time to understand what you can control. The variables in our control are: how much we spend, how much risk we take with our investments, and when we retire. In general, it is not recommended to change how much risk you are taking with your investments, but rather to either work longer or live on less.

Tip # 5: Have A Plan!

If you are on a road trip from Ohio to California would you bring a map or GPS? My guess is you would probably bring both. But why would you want both? Having a map gives you the control to know what you need to do in order to reach your destination, what highways you need to take, what streets you need to turn on, it gives you the knowledge you need to get to your location. With a map, if you hit a detour, new roads, or get off of your planned route by accident or happenstance, then it takes a while to figure out how to get back on route. If you bring a GPS then it’s even easier because it takes all the work off of your shoulders and automatically calculates the most efficient route, and helps you get back on track after a misstep.

The same can be said about saving for your retirement. It may be a far off destination that you are travelling towards, but by not having a well thought out plan you are essentially driving blind. You may know the general direction you need to travel, but you lack the step by step instruction to get to your destination. If you have a GPS navigating you to your destination and you hit a closed road or detour along the way, your GPS will automatically recalculate its route and get you back on track in the most efficient manner.

Working with a Certified Financial Planner (CFP) is like having a GPS to help you achieve your goals. So when life throws you a curve ball it’s simply a matter of making a few small changes to get back on track rather than being forced to make life altering changes. The key here is simply that knowledge is power, the more you have the more you are in control.

About the Author:

Scott Haley is the owner of Prelude Financial, LLC located in Wadsworth, Ohio. Prelude Financial is a fee-only comprehensive financial planning and investment advisory, specializing in retirement planning and dedicated to providing unbiased conflict-free advice. Our central focus is to empower you to be financially comfortable to live a better life. Prelude Financial’s goal is to help you feel smart, informed, secure, & confident through providing best in class financial planning and investment management advice and services. We believe the most important aspect of financial planning is gaining a complete understanding of your objectives, motivations, and concerns. Once we understand your unique situation we can begin helping you accomplish your goals.

To learn more about Prelude Financial, visit Preludefinancial.com.

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