When you finally starting working at your first “real” job your focus of your financial concerns is on the here and now. Eventually, if you start a family your focus will shift to thinking about things like braces, college, and weddings down road. Even farther down the road, however, is your own retirement. At some point your focus needs to shift to financial security for you during your “Golden Years” – and the sooner you make that shift, the better. Failing to plan for your retirement years, or starting to plan too late, can have disastrous results. What can you do now to ensure your financial security during your retirement years? Because everyone’s financial situation as well as their needs are unique, the best way to secure your financial future is to work closely with both your estate planning attorney and your financial adviser. In the meantime, though, there are some common considerations you should be aware of and some common steps you can take to help make your “Golden Years” comfortable.
What Will It Cost You to Live Comfortably during Your Golden Years?
Every expert, and a few who aren’t experts, has a formula that portents to tell you exactly how much you will need to live comfortably during your retirement years. While there is no way to know which one, if any, of these formulas is 100 percent accurate, there are some common denominators in most formulas that can be helpful. For example, the general consensus is that you need about 80 percent of what you spend now on a monthly basis to live the same lifestyle during your retirement years. For example, if you currently need $5,000 a month to live comfortably, you would need $4,000 a month if you were retired.
You also need to take into consideration how long you are likely to live. On average, Americans live much longer than they did just a few generations ago. A longer life means you will spend more time in retirement so you need to plan accordingly. Try using the online “How Long Will I Live?” test for an estimate eon your life expectancy. With a general idea of how much it will cost you to live comfortably per year, and an estimate for how long you will live, you are on your way to knowing how much you need to save for retirement. Add to that figure an emergency fund and make sure you account for the likelihood that you, or a spouse, will need long-term care.
Include Retirement Planning in Your Estate Plan Early On to Gain Financial Security Later On in Life
Unfortunately, the future of the Social Security retirement system is unsure at the present time. Even if the system continues to provide benefits well into the future, those benefits will never go as far as they once did toward supporting retirees. Consequently, you must plan to support yourself during your Golden Years and the benefit of starting early cannot be understated. If you need convincing, consider the following two examples:
Example #1 – Starting Early: In this example to start saving for retirement at age 25 by putting $3,000 a year in a tax-deferred retirement account. You continue until you reach age 35, just ten years. Using a 7% interest rate, your $30,000 investment will have grown to more than $338,000 by the time you are ready to retire at age 65, even though you did not contribute another dollar beyond age 35.
Example #2-Starting Late: Instead of stopping at age 35, you start saving for your retirement at that age. You contribute the same $3000 per year for the next 30 years for a total investment of $90,000. Even though you invested an additional $60,000 of your own money, it would only grow to $303,000 using the same interest rate.
The end result is that by starting earlier you gain an additional $35,000 when you retire even though you invest $60,000 less of your own money.
For more information, please join us for one of our upcoming free seminars. If you have additional questions or concerns about how to ensure your financial security, contact theCollins Law Firm by calling (310) 677-9787 to reserve for a Free Estate Planning Workshop.