ll archives: How to Build a Retirement Plan
Retirement is probably the last thing from your mind right now. When you're young-ish and love your career, retirement is one of those things that's on the back-back burner, or at least that's the case for me. (Okay, young-ISH!) But even though that's a 20-30 year down the road event, the time for retirement planning is now, ladies. Here's why:
Retired households spend on average $40,938 per year. Health care costs aren’t exactly inexpensive for anyone these days, but retirees in particular can face some pretty substantial costs, spending on average $5,094 per month. Of course, these costs vary based on where you live (cost of living, tax rates, housing market, etc.) and the state of your health.
I know, wow. I don't have that much money, do you?! Or rather, we don't have that much money...yet. Thankfully, we have a couple of things on our side: time and the power of compound interest.
Let’s say you start saving at age 25, stashing away $300 per month and you earn an average 8% return. If this held true for 40 years, you would contribute $144,000, but earn $1,007,212, all thanks to that wonderful little fella compound interest. You go girl, you’re a millionaire!
See? Easy as pie. Okay, not really, but if you haven't started saving for retirement yet (or if you have, but have been somewhat lackadaisical about it), all is not lost.
Overwhelmed much? Don't be. Let's just start by taking three easy steps. Remember, time is on our side so we can tackle some more steps later.
Paint Your Retirement Picture
You're a business owner so you know how to make a plan and build a vision. How do you envision your retirement? Would you like to travel? How does owning multiple homes sound? Do you think you might want to leave your grandchildren with a trust or college fund? The possibilities are truly endless, but they will cost you. Painting your retirement picture is a crucial step because it will help you determine how much money you will ultimately need so you can determine how much you should start saving now.
Open An Account
An Individual Retirement Account (IRA) is a retirement account you can easily set up and get started on the road to building your future. You have about a gazzilion choices—anywhere from Fidelity to your local credit union (sometimes), to your big box bank offers IRA accounts. An IRA gives you several investment options including mutual funds, individual stocks and bonds, and money market funds. There are also major tax breaks to contributing—double cha-ching!
I have a confession to make. Even though I'm the resident finance Expert for LL, I love to shop. Don't get me wrong, I'm a bargain hunter, but given the choice between saving and shopping, about 8 times out of 10 I'll choose shopping. Whew! It feels good to get that off my chest! But because I am an avid believer in the importance of an emergency fund, safety net, and nest egg, after tithing, I always pay myself first. I've found that the easiest way to do that is to automate my retirement and saving contributions. I have money taken directly from my paycheck electronically so I never see or think about it. You're busy running your business, right? You don't have time to remember to make a deposit each month, so make it easy on yourself and automate. Whatever amount you choose (based on that picture you painted) will automatically be deducted from your paycheck or account and eventually you won't even notice that you're living on less—it just becomes the new normal. A new normal that is setting you up for a fabulous future and retirement!
You have a phenomenal career ahead of you, ladypreneurs, and with some deliberate planning and a little sacrifice, you can have an even better retirement. Can someone say travel the world?!
While we stand 100% behind our financial musings, don't just take our word for it! Consult your personal financial advisor, tax professional, and/or lawyer prior to making any major financial decisions.