Statistically, more than half of retirees struggle financially when they retire. With the exception of those who retire early after becoming financially free or wealthy at a young age, most of the people who reach at least 60 years of age would still continue to find a living on top of relying to their pension and retirement plans. Only a few will get to enjoy their golden years.
The key in becoming financially free upon retirement depends on how you build your financial foundation during your youth and working days. Building a financial foundation is a process and one of the steps in building a right and solid financial foundation is creating and accumulating emergency funds, savings, and investments.
Everybody knows how important savings and investments are in getting wealthy or at least retiring worthily. However, most people face the dilemma of it’s complexities because of their limited knowledge and lack of discipline. Savings doesn’t entail much brain work but requires a lot of discipline while investments require both. To save and invest successfully, you should invest in knowledge and change discipline your emotions.
Knowing how much are you going to need later on in life would actually depend on what kind of retirement and ambitions do you have. However, ambition may sometimes destroy your financial foundation as it may cost you a lot or worse, a lot more than your pension and retirement plans, savings, and investments combined. So rather than thinking only about what kind of life do you want after retiring, think of what else can you do to continue earning even without you exerting any effort on it or in short, making your money work of you.
In the most basic sense, an emergency fund should equal to at least three times your annual income. If you’re earning $50,000 a year, you should save at least $150,000 for your emergency fund. Emergency funds, as the name suggests, are funds that you can pull easily in case of emergency. However, since emergencies don’t happen all the time, you’ve got a good chance to accumulate even more than three times your annual income.
As soon as you start accumulating more, you can start to save for your retirement through your emergency fund. But how much is really needed for retirement? The answer would be too subjective because first, people have different needs and wants when they retire and second, there are several factors to consider such as inflation rates, interest rates, etc. So instead of setting a fixed amount, identify your retirement goals and start working on it. Here are a few tips in plotting down retirement goals in order not just to save for retirement but also to make you enjoy retirement a lot more by making more money.
1.) Be aware of your needs upon retirement. Generally, retirees face health issues and health issues are major finance and savings killers. Rather than saving up for it, invest in health care and insurance plans. These two will take care of your finances as soon as you get sick thus saving you from using your emergency funds and investments. Health care and insurance premiums are reasonable and they are way cheaper than hospital bills. While you’re still young, invest in these two. You can never get these once you’re sick already.
2.) Define your dream retirement. Dreams are normally wants thus be clear about what you really want while you’re still young and could still work for it. Do you want a huge house? A nice car? Vacations? Or just spending time with your family? Either of these would require money in order to make such experiences worthwhile. People have different wants thus for those with simple dreams, it may not require a lot of savings or investments but for those who want a lot more from life, saving more and working harder today would be wise. Great things never come in an instant and easy, you have to work for it and it will take time to establish.
3.) Know the underlying financial constraints that retirement brings. Aside from health issues, your dreams may bring financial strains as well. Properties are subjected to tax while investments may require further financing for whatever reasons. Anticipating such financial responsibilities will make you save you from a lot of headaches and worries. Aside from saving up for your dream retirement, also save up more for unseen expenses or financial responsibilities.
4.) Invest for the future generations. Some people think that it is their children’s responsibility to support them as soon as they get old. However, what they have failed to realize is that their children are going to have families of their own soon too. Investing and making it grow will not only keep your children from supporting you in your old age, it is also a hedge for them against financial struggles later on in their lives and will make them focus on their own lives instead of shouldering the responsibility of supporting a retiree. As a retiree, it is your obligation to support yourself through the investments that you have made early in your life. A financially free family is a happy family.
The key in a successful retirement doesn’t rely on how much amount should you save upon retirement but rather by defining your goals and future financial responsibilities and covering them as early as now. Building a right and solid financial foundation doesn’t take a lot of time as long as it is done right. If you invest in knowledge and develop discipline, you’d sure be on your way towards a happy retirement in no time. Retire early, retire young, retire happy.