How many of you have taken time off from work for a family vacation?
With the new year comes a new set of vacation days for many workers. Perhaps some have already started planning their next trip, even if it is months away. Eventually you pack your bags and everyone loads into the car in anticipation of the event. Now, how many of you have been in the car, looked at your spouse and asked, “So, where are we headed?”
Most people spend a decent amount of time planning their trips, from picking the destination to mapping out the route they’ll take to get there. Much preparation goes into that week of freedom. Advanced planning allows you to start saving for such an event ahead of time. Making a plan could provide you with the resources to do those extras that make a family vacation special. Not to mention, planning and preparing a budget can help prevent overspending and overshadowing the memories you’ve created.
Given the amount of time people spend on their vacation plans, it was alarming to see the Charles Schwab Retirement Income Study, which shows the number of people who have calculated how much income they’ll need in retirement.
According to the study, 64 percent of respondents indicated they had less than one year of cash living expenses saved for retirement, and one-third of respondents said they had not even determined what their essential living expenses in retirement would be.
This study wouldn’t be so overly alarming except for the fact that the respondents were just five years away from retirement. Those five years still provide some time for creating a strategy to have the retirement you want, but starting earlier allows you to plan for those extras, just like with vacations. Like the couple in the car, it is hard to get there when you don’t know where you’re going.
So whether you are five years or 35 years from your desired retirement age, make sure you’ve taken the following steps:
Picture what your retirement will look like. Are you planning on extensive travel? Do you want to pursue a hobby? Have you been thinking about starting a new business? Each of these will require different savings. You won’t know how much to save if you haven’t pictured for what you’re saving.
Use your current contributions to determine the future value of your savings. By calculating what your retirement account values could be worth in the future, you’ll know if your current contribution amounts are acceptable or if you need to make adjustments to meet your goals. There are a number of online calculators available to help you find this number.
Review your current expenses. Determine how much you are spending each month on essentials. That should give you a good idea of which expenses you’ll still have when you retire.
You’ll want to review these numbers every so often to make sure you are still on track to reach your goals. If your goals have changed, then you can readjust your plan. The start of a new year is as good a time as any to reevaluate progress and make adjustments.
Setting a strategy for retirement doesn’t need to take hours of your time. Spending just a few minutes each quarter, even less than what might be spent on vacation planning, can help prepare you for what should be the best vacation of all.
Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal. Keep tabs on Scott on Twitter and Facebook.