Even if you’ve been socking away money for retirement for years, giving your savings plan a “performance review” at least once a year is very important. If you’re having trouble hitting your goals — like the 33% of Americans who haven’t saved any money at all for retirement — you may need to fine-tune your approach so you can really stick with it. Here is how to determine if your retirement savings plan is working for you and, if not, how to fix it. It’s easier than you think.
What does your retirement look like?
Whether retirement is 10, 20 or 40 years away, the time to think about it is now. Why? Where and how you live will determine how much money you’ll need to maintain that lifestyle.
Many people prefer to retire in place, but if you plan to move, it is important understand what your costs will be — whether you prefer living on the beach, in the mountains or in a big city.
Then, prepare a budget to determine what your expenses will look like. What will essentials such as housing, transportation and food cost you? What will your medical expenses run? How much do you want to travel? Are there big-ticket items you dream of buying?
Having that concrete budget goal for the future will make it a lot easier to work backwards and figure out what you need to save today.
Work backwards and make a plan
Planning for retirement might seem overwhelming, but it really comes down to just two things: saving money and making your money grow.
Saving money doesn’t have to mean clipping coupons. Small, creative wins can add up to big savings over time, whether you’re trimming car expenses or paring down your grocery bill.
Make a list of just three small wins you can implement today, and see what sticking with them for one month can save you. It won’t be long before you’re watching your retirement account grow.
Of course, big wins, like saving on your home, can add up even faster.
As for putting your money to work for you, the best way to make sure that your retirement fund keeps growing is to invest in it consistently. If your company offers a 401(k) account, log into it to ensure that your automatic contributions are as high as you can comfortably afford. Even a small bump of $50 per month can lead to an extra $23,000 in 20 years.
Use psychology to stick with it
Daydreaming about retirement is a lot of fun until you snap out of it and realize that your beach lounger is actually an office chair and that piña colada is your second coffee of the morning.
Actually, though, visualizing your dream retirement can bring powerful results; studies suggest that seeing yourself succeeding can actually help you stick to your plan and achieve your goals. Make your dream more concrete by creating visual reminders, such as photos of your ideal retirement that you use as a screen saver on your mobile phone or home computer or photos in your cubicle at work. When you’re deciding whether or not to splurge on that new car or go with the “practical” model, you’ll be able to tie the smart choice to a real outcome that you can already see.
Even if your retirement savings performance isn’t where it needs to be, you can take steps today to get on track. The most important step is to get rolling this week. Given how busy life is, it is easy to put off planning and paperwork — and to watch another year go by without saving. Visualize your ideal retirement, make a plan and stick to it. Your dream will be a lot easier to achieve than you think if you commit to it today.