Follow 3 Simple Steps For Retirement Savings Success

retirement savings successWe suck at saving for retirement. The average 50 year old has $43,797 saved for retirement. I hate to break it to you, but that is just not going to cut it. The fact is that most of us have a hard time saving for retirement. Because of this, we need to figure out a plan for retirement savings success.

If we can figure out a way to save for retirement, then we can actually retire. We will also be happy because we will have enough money so that we are not stressed all the time. Luckily, there is a plan for retirement savings success already outlined. I found it at SmartMoney.

The 3 steps outlined in the article are:

  • Employing a consistent, long-term savings and investing strategy
  • Working with a financial adviser
  • Saving money in your workplace retirement plan

Your Plan For Retirement Savings Success

These 3 points are basic, but it is incredible how many people fail to do them. Let’s look at each one so we can understand their importance and determine if you need to follow each step or not.

Step #1: Employing A Consistent Long Term Savings And Investment Strategy

This point is key. It is so important, it should be highlighted, underlined, starred and in bold font. If you save or invest nothing, how will you ever retire? Do you think money will magically show up under your pillow like it did when you were a kid and you placed a tooth under it?

The reality is that you have to save and invest if you want to retire one day. But so many people don’t. Why?

Let’s look into the mind of a typical person. They say to themselves, “I should start saving for retirement.” Then a commercial comes on TV for the new iPhone and drooling ensues. By the time the commercial is over, they say to themselves, “what was I going to do again? Nevermind, that new iPhone looks sweet!”

I’m not trying to pick on people, I’m even guilty of this. But we have a short attention span. Plus companies spend millions every year to better understand how we think and react. They then use this against us so we fulfill a short-term need instead of a long-term need.

If the above example doesn’t describe you, then maybe this one does.

Here is how many people think when they think of saving for retirement. They say, why should I save a bunch of money when I might not even be around to enjoy it? YOLO people. YOLO.

In either of the examples there is one thing true about both of them. We are not good at conceptualizing the long-term. So, to save for retirement, we need to re-wire our brains. Don’t worry, it won’t hurt.

The Trick To Get You To Save For Retirement

To re-wire our brain, we have to link retirement with something. Take out a pen and paper. Or open your note app on your smartphone. Start thinking about and writing down what you want out of retirement. Here are some ideas to get you started:

  • Play golf every week
  • Have a beach house
  • Drink pina coladas on the beach all day long
  • Spoil your grand kids
  • Pay for you, your kids and grand kids to go away on an amazing vacation every year
  • Buy an NBA franchise

Just think what you want to do. What are your dreams and desires?

Once you have them written down, you need to figure out a way to remember them. Here are a few ideas for that:

  • Set up a reminder every week in your smartphone
  • Put a note with them in your wallet so you see it when you buy something
  • Send yourself an email using Future Me
  • Set up a recurring reminder in your email

The key is to keep your dreams and desires in the front of your mind.

How does this work? It gets us thinking about retirement in a different way. Most people see saving for retirement as a waste because they may not be around to enjoy it. Others look at saving for retirement as giving up on having fun today.

Both of these are negative thinking. We should see goals as something that will bring happiness when we achieve them. This puts retirement in a positive light. It becomes something we look forward to reaching and attaining.

But you have to keep the dreams in front of your mind, in front of your face. The more you see and remind yourself of them, the more likely you will make smarter spending choices. And the more likely you will be to fund an IRA or increase the amount you are saving for retirement.

That’s it. Take 10 minutes. Figure out your dreams and another 5 minutes to set up a system so you are reminded of them. Then you can go back to doing whatever it is you do for fun and relaxation. Can you sacrifice 15 minutes of your life to reach your dreams for retirement?

Do you need to follow this step? A thousand times, YES!

Step #2: Working With A Professional

Working with a professional is a good idea for a lot people, especially when it comes to retirement savings. Even though investing sounds complicated, it is quite basic. The problem is that everyone has an opinion and this creates a lot of confusion.

Everywhere you turn, someone else has a different take on things. If you are able to look at the long term and keep your emotions in check, hiring a financial planner might not make sense for you.

But, when it comes to planning for retirement, you might be well served by a financial planner.

This is because a financial planner looks at all the pieces of your financial life. An investment plan and investing is just one piece of your financial puzzle.

The other areas include insurance, estate planning and taxes. A good financial planner will look at all these puzzle pieces. They will work with you to make sure you are in the best financial shape possible.

When I worked for a high net worth financial planner, we dealt with these issues on a daily basis. It boggled my mind how many high net worth people had almost zero insurance coverage. We live in a litigious world. You are asking for trouble by not carrying the right amounts of insurance.

Another benefit of a planner is they help you be successful when investing. They do this by helping you to keep your emotions in check. The media likes to play with our emotions to breed fear. Once fear sets in, we irrationally buy and sell investments at the wrong time.

A planner helps you to avoid this. They are your voice of reason (assuming you find a credible one). They will help you to stay invested for the long term, which is a key to investment success.

Do you need to follow this step? It depends. For most people, the answer is yes. Having someone to hold their hand along the way and look at their entire financial life is priceless.

For example, at the planning firm where I worked, we had a client tell us something interesting. Over the course of our relationship, he had paid us over $10,000 to manage his financial life. To many reading this, that sounds like a lot.

But he told us he would have paid 5 times this amount knowing where he stands now. With the turbulence of the market over the past 20 years, he said he never would be where he is today without our help. He would have moved to all cash a long time ago and have a lot less money today. But we held his hand and worked through the market crashes together.

I know the upfront cost of a planner sounds like a lot of money. But you also have to take into account what you are getting for that cost. The ability to retire on your terms and not have to worry about money?

If so, the fee is more than worth cost.

But for some readers, you might be able to skip the planner step. There are a lot of tools and services out there that will help you with your planning. For example, there is Personal Capital.

With this free tool, you see how much your investments are costing you. You also see if you are investing based on your risk tolerance.

And the best part, they will assess your chance of retirement success with their planning tools.

I have a free account that offers this tool and it is identical what we used at the planning firm I worked for.

If you are on the fence about whether you should seek out a financial planner, but are also unsure if you want to handle things yourself, you have another option. You could pay a planner a one-time fee to develop a plan to see where you fall short and then take it from there.

Step #3: Saving In Your Workplace Retirement Plan

When it comes to saving for retirement, most people start with the 401k offered by their employer. In years past, it was up to you to decide how much you wanted to save. Thanks to new regulations, many employers auto-enroll new employees into the company 401k plan. Most plan start employees with a salary contribution of 3%.

Unfortunately, that is the end of the road. If you want to save more, you have to elect to do so.

Saving money in your retirement plan at work is a no-brainer for two reasons:

  • First, many employees get a match up to a certain point, which equates to free money. Why people turn down free money is absurd to me. The employer is telling you, “hey, if you save $100 from your paycheck, I’ll give you another $10. No strings attached.” Why wouldn’t you do this?
  • Second, you get a tax break. We all hate paying taxes. This is the easiest way to get out of paying them. For every dollar you contribute, you save a percentage of that on your taxes. Again, you are coming out ahead by saving money!

Even if your employer doesn’t offer a match, you still reduce your taxes when you contribute to your 401k. I don’t even care if you are in debt and are trying to dig out. You should still be saving money in your retirement plan at work.

Do you need to follow this step? Yes! Saving in your 401k plan at work is automating your investing. Automating works for saving money and it also works for investing too. The sooner you take advantage of this benefit, the more likely you will be to retire one day.

The only catch is saving enough. Saving 3% is a good start, but you need to bump this number up to 10% or more.

Luckily, you don’t have to do it all at once. You could increase the amount you save each year by 1% until you hit 10%.

For me, I would rather just save 10% from the start. That way, I am saving a good amount for retirement and I am getting accustomed to living on a certain amount.

Final Thoughts

In the end, retirement savings success is possible when you break it down into pieces. Start off with a well defined vision of what you want retirement to look like. Then create a plan that helps you progress towards that vision.

From there, decide if you need your hand held with regards to  your financial life. If you do, then find a financial planner that is the right fit for you.

Or if you think you can do it yourself, skip a hiring a financial planner. Just make sure you follow through with keeping your finances current.

Finally, take advantage of tax deferred saving plans in the form of a 401k plan at work or even through IRAs. The more you can save, the better off you will be.

If you can do these 3 things, you will be well on your way to achieving retirement savings success. And for those of you that want to retire early, just super-charge these tips for a life of your dreams!

19 thoughts on “Follow 3 Simple Steps For Retirement Savings Success”

  1. I’m so glad that I have a retirement 401K through work that I can setup to have it taken directly out of my account – it makes saving for retirement automatic. If I had to do it myself I’d probably choose to keep the money half the time.

    1. @Brock @CleverDude: When I was working for an employer having a 401k plan was a blessing. Now that I am self-employed, it takes a little more discipline to save for retirement but I just remind myself that I pay less in taxes if I just save the money instead of spending it.

  2. I’m still absolutely amazed by how many people pass up getting their free 401k employer contribution because they don’t contribute enough to their own accounts. It’s such easy money!

  3. Great points, especially on having a finance professional. While I have probably enough knowledge to be able to manage myself. They can help coach and make you think about ways in which you could potentially boost returns and help reach your goals quicker..

    Simple but very important post here Jon 🙂

    Thanks

    1. @Jef Miles: Yeah, as much as I do our finances myself, it helps to have close friends in the industry to throw ideas off of. You just get another perspective with how to do things that could benefit you in the long run.

  4. We worked with a financial planner for several years and I think he got us off to a good start in terms of thinking about insurance coverage and estate planning. Sadly, we eventually came to the realization that many of the products he was getting us signed up for (like whole life insurance) were benefitting him a lot more than they were benefitting us. We got smart, dumped him, dumped whole life insurance, and we’ve been on the DIY track ever since then. Having an advisor at first was helpful but we feel much better about doing it ourselves now.

  5. Jean @ NearlyRetired

    We’ve been pretty self-directed, though I’ve thought about doing a check-up with a financial planner. The challenge is finding one I’d trust. 🙂 Would love guidance on how to choose one.

    1. @Jean @ NearlyRetired: My wife an I handle most of ours as well, though there are times when I think of just having someone else take a look, just to get some thoughts and ideas. After all, it is always good to have someone that isn’t tied up emotionally to some investments (like a rental property) to give their unbiased advice.

  6. I’m a huge fan of my 401K through my employer. I love that it just automatically deducts from my paycheck, and that it’s matched! It’s been the best and most consistent way for me (and Mr. Frugalwoods through his employer 401K) to save for retirement.

    1. @Mrs. Frugalwoods: When I was working for a company I loved the ease of my 401k plan as well. I remember just plugging away money and not looking at it for a while. After about a year, I was stunned at how much those little deductions from my paycheck added up.

  7. The one that jumps out at me is the one about an advisor. I say that because I actually handle everything on my own at the moment. That being said, as I get older, I realize that things can actually get more complex, and that even for personal finance mavens it can be valuable to get expert advice on specific issues. Also, it’s good to get additional ideas from others doing this all day long.

  8. Vision is really an important factor in almost everything we do. I always go back to my vision or goals whenever I lose determination or hope in this financial journey. It’s very encouraging to see where I am now in achieving my goals.

  9. Working with a professional is very helpful for me because he was able to convince me and teach me strategies I could never learn by myself. Now, he is helping me with every decision I make and I am glad he’s there to support me.

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