Saving Money for Retirement — 6 Steps to Peace of Mind

by Neal Frankle, CFP ®

You already know how crucial it is to be saving money for retirement – no matter what stage of life you’re in. Here are 6 steps to help you do just that:


Saving Money For Retirement


1. The Plan

Lots of people assume that spending is the most important element for retirement success. Not so. If you want to have enough money for retirement, you have to understand the relationship between your retirement investments and assets, retirement income and retirement spending.

Example. Assume you’ll have $150,000 saved up by the time you want to retire. If you’re lucky, you’ll be able to earn 5% on that $150,000. That comes to $7,500 a year. This is the amount you’ll be able to draw out as income.

If you can live off of $7,500 a year, you’re set for life. If not, you have to increase your retirement income, decrease your retirement spending (especially your cost of debt), decrease current spending (to save more now) or a combination. If you are going to have $1,000,000 saved by the time you retire, those retirement investments will generate $50,000. You may not have to worry about anything….or you may have to worry about a lot.

You don’t know where you stand until you plan out:

  • How much you’re going to have
  • How much you’ll be spending
  • How much income you’ll receive

You’re looking for a balance – and you have to understand that balance. That’s the only way you’ll ever know how much money you need to retire.

2. Spending

Having said that, it’s always wise to boost your current savings and a great way to do that is to learn how to stop spending. I’m not asking you to live in a cave (although it would be super cheap!), but always shop around. If you need a car, buy a slightly used one. It will save you a ton of money. Cut (way) back on eating out too. That is the biggest budget buster there is.

Think of every dollar you spend today as three you might have in the future. When you spend money, take out a dollar and give George Washington a kiss goodbye. Do this because you’re never going to see that dollar again. (You’ll hate embarrassing yourself by kissing your money goodbye in public, so you’ll spend less! Unique idea!!!)

3. Debt

If you don’t have debt, great. Never ever acquire it. If you are in debt, put all your energy into getting out of debt as soon as you can. There is nothing more important to your financial well-being.

4. Retirement Investing

Once you’re out of debt, maximize your retirement contributions. This is especially true if your employer offers a plan. Often they match each dollar you put in with 15 cents or more. That’s an automatic profit for you so take advantage of it.

5. Develop an Investment Strategy and Stick with It

There are many ways to invest your money. You can buy and hold; you can invest in ETFs, stocks or mutual funds. You can be “market sensitive.” I’m not going to tell you the best way to invest for retirement here. But I do want to emphasize that you’re going to be disappointed at some time. No investment strategy does great all the time. You may have a strategy that doesn’t perform well over a year or two. You might be tempted to abandon it.

Make sure your investment approach is sound. If it is, stick with it even when times get tough. People who switch their strategies often are those who do the worst in my experience.

6. Protection Using Life Insurance and Trusts

Be smart about life insurance. If people depend on your income, you have to own life insurance – but make sure you get the right amount of life insurance. And make sure you get cheap term insurance. That’s the way to protect your family. Also, keep in mind that things change. At some point, your dependents will become independent. They won’t rely on your income anymore. Once that happens, you won’t need life insurance anymore, or you’ll be able to get by with less. However, as you advance in age, sometimes things don’t work out. You might find that even as a senior you need life insurance. If that’s the case, make sure you realize it and take every step possible to get the cheapest senior term life insurance you can.

While we’re on the subject of protection, make sure you have the proper trust or will. Talk to an attorney to make sure everything is in place. And remember that things change. Laws get updated and your situation shifts. I recommend that you update your trust every five years at the very least.

Remember that you’ll likely Live Long. Now go out there and Prosper by following these 6 steps.


Photo credit by Orange Country Archives, Flikr



Subscribe & Get Your Free E-Book and E-Course as My Gift to You!

Investing Your Money Made SimpleOnce a week you'll get unique tips to make smarter money decisions about your investments, retirement, taxes, and career. You'll also get encouragement and ideas to help you get out of debt, earn more money, and generally stop worrying about your money.

Neal Frankle is a Certified Financial Planner™ with over 25 years experience. Subscribe today and tap into this wonderful, free resource!

Become a Fan! Follow @NealFrankle

{ 9 comments… read them below or add one }

Leave a Comment

3 − one =

Previous post:

Next post: