Retirement is a milestone many people spend years -- sometimes decades -- counting down to. But rather than focusing on simply when you'll retire, it's also important to think about how you'll retire -- meaning, what it will take to allow you to live out your senior years in a manner you're happy with.
Recent data from New York Life reveals that Americans, on average, believe they'll be able to retire at age 64. However, only 21% of those surveyed have an actual retirement strategy. If you're in the majority of people who haven't really thought retirement through, here's how to devise a strategy that can work to meet your goals.
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1. Figure out what you want retirement to look like
Maybe your dream retirement has you spending your days gardening and babysitting your grandkids. Or maybe you want to move to a big city and go to nice restaurants and shows multiple times a week. It's important to get a sense of how you want to spend your days in retirement, and to think about the sort of place you'd want to call home.
2. Estimate your senior living costs
Once you determine how you envision your retirement, the next step is figuring out what it will cost. If retirement is decades away, getting an exact handle on your day-to-day expenses may be tough. There are many factors, like inflation, that you'll need to account for. But try.
Think about what it might cost to rent a home in your desired city and what your food and entertainment budget might look like, for example. This way, you can at least come up with a rough number.
3. Assess your current expenses and automate the highest monthly retirement plan contribution you can afford
No matter what your ideal retirement entails, you could use as much savings as possible to pull it off. Crunch some numbers now and see what your essential bills amount to. Then, subtract that from your net earnings to see what sort of retirement plan contribution is feasible on a monthly basis.
Once you have that number, automate the process. Sign up for a 401(k) through work, or find an IRA with an automatic transfer option and arrange for a specific sum of money to hit that account every month -- before you get a chance to spend it.
4. Invest your savings in line with your age and risk tolerance
As a general rule, you can afford to take on more risk in your portfolio when retirement is far away, and you should generally take on less risk as it gets closer.
Think about where you are in terms of your career, but also consider your personal tolerance for risk. If having 95% of your portfolio in stocks will cause you undue stress, then it's a poor choice even if you're 25 years old and retirement is a good four decades away.
The more time you spend planning for retirement, the more likely you may be to enjoy your post-career years. If you're not sure how to devise a retirement strategy, start with the tips above. But also consider talking to a financial advisor. They may be able to customize a strategy that serves you really well based on your income, plans, and goals.
