3 Steps to Get From Here to Retired

Stop worrying about retirement and start working toward the golden years you're looking forward to enjoying.

Apr 5, 2014 at 10:10AM

The toughest part about planning for retirement is dealing with the unknowns. When the big event is decades away, it's impossible to know things like how long you'll live, what sort of mental and physical health you'll be in, what the stock market will do, what inflation will be like, and even whether or not Social Security will still be paying out benefits.

Unfortunately, none of these questions can be answered with any certainty until it's too late to dramatically refine your saving and investing plan. However, with a solid plan that gives you the flexibility to handle life's curve balls, you can dramatically improve your chances of retiring with a portfolio that will keep you comfortable in your golden years.

With that in mind, here are three steps to help you set the foundation for a solid plan -- one that you can adjust as life happens.

1. Set a savings target
Think about what you want to do when you are retired. Will you travel? Move from the suburbs into the city? Become a local philanthropist? Pursue a new or part-time career? Next, put a price tag on your lifestyle -- the amount of money you'll need each year to cover your expenses. It may be a wild guess -- or you can simply start with your current income -- but putting a number down on paper is where you have to start.

Once you have your estimated monthly expenses, subtract from that your anticipated net Social Security check and any monthly pension payments you may get, then multiply the remainder by 300. This is a rough number that tells you how large your total portfolio will need to be to cover your costs. At that size, your portfolio should generate enough growth and income that you can take advantage of the 4% rule, a solid (if rough) estimate that will help reduce the odds that you'll outlive your money.

While that estimate of 300 times monthly expenses may seem daunting, there are a number programs available to help you build your nest egg faster, which leads us to the next step.

2. Take advantage of every savings plan at your disposal
Start with qualified retirement accounts like IRAs, 401(k)s, 403(b)s, and the government's Thrift Savings Plan. These plans let your money grow tax-deferred, or potentially tax-free, and depending on the type of account, you may even get a tax break immediately for putting money into the account. Another bonus is that many employer-sponsored plans offer a company match for some portion of your contributions. Depending on your tax situation and the level of the match you get, it may give you the opportunity to instantly double your money, which will go a long way.

Of course, if you haven't been saving, it's hard to go from $0 to $1,000 per month in savings overnight. Don't get discouraged. Instead of an all-or-nothing approach, focus on what you can start with right now, and then ramp up if you're able to reduce your spending or increase your income over time.

The table below looks at the monthly contribution needed to reach $1 million by retirement depending on different returns and time frames. As you can see, it's important to get started as quickly as you can, even if you can't spare the total right away:

Years to Go

10% Annual Returns

8% Annual Returns

6% Annual Returns

4% Annual Returns

40

$158

$286

$502

$846

35

$263

$436

$702

$1,094

30

$442

$671

$996

$1,441

25

$754

$1,051

$1,443

$1,945

20

$1,317

$1,698

$2,164

$2,726

15

$2,413

$2,890

$3,439

$4,064

10

$4,882

$5,466

$6,102

$6,791

5

$12,914

$13,610

$14,333

$15,083

Data from author's calculations.

3. Be flexible and adjust as needed
Building and maintaining a nest egg is a long-term commitment. Between now and retirement (and beyond), life happens, and when it does, be ready to make course corrections to reach your goals.

Let's say you are 10% shy of your savings goal when you reach retirement age. You can remedy that by working another year or two in order to give your money more time to grow (and perhaps increase your Social Security benefit, too). Or maybe you decide that you're ready to retire earlier than you planned. In that case, you could consider downsizing your home and lowering other costs in order to retire a few years earlier.

The point is, as you evolve, so should your retirement plan. By following the steps outlined above to build a solid savings foundation, you'll better be able to call the shots as you work toward the golden years you've dreamed of.

Want to Retire Wealthy?
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers