Everyone knows that retirement planning is important; however, people are often unsure exactly when they need to start planning for their retirement. If you are still relatively young, and just starting out in your career, retirement planning is probably the last thing on your mind. In fact, you likely think you are too young to even start thinking about your retirement. The truth, however, is that you are never too young to start planning for your retirement.
Why Is Retirement Planning So Important?
Thanks to advances in science and medicine over the last century, the average American now lives almost twice as long as they did at the beginning of the previous century. As a result, you can expect to live, on average, into your late 70s or early 80s. With the official retirement age in the United States currently set at 66, that means there is a good chance you will spend more than a decade as a retiree. Just because you are retired, however, your bills and expenses do not disappear. On the contrary, as the natural aging process takes effect, you are likely to incur more expenses, not less. In order to avoid bankruptcy, or at least living on a tight budget, retirement planning is essential.
What Will It Cost You to Live during Your Retirement Years?
To hammer home the importance of starting your retirement planning early on in your life, take some time to figure out what it will likely cost you to live during your “Golden Years.” Despite claims to the contrary, there really is no way to know exactly what it will cost you to live during your retirement years. There are, however, some generally accepted guidelines. For example, most experts agree that you will need about 80 percent of your pre-retirement income for basic living expenses post-retirement. For example, if you spend $6,000 per month on everyday living expenses right now, you would need about $4,800 per month for those same expenses after you retire. Once you have that number, multiple it by 25 because if you are at the end of the longevity curve you will spend that much time in your “Golden Years.” You will also need to factor in inflation at the rate of three to five percent a year and add in a basic emergency fund. On top of all that, you need to account for the likelihood that you, or a spouse, will eventually need long-term care.
The Benefits of Starting Your Retirement Plan Early
The benefits of starting your retirement planning early on are numerous; however, the biggest benefit is the simple fact that you can save significantly more by starting early. Imagine, for example, that you started saving at age 25 and saved and only saved for ten years, stopping at age 35. Now imagine that instead of stopping at age 35, you start saving at age 35 and save until you retire at age 65. You would likely assume that you would save more by saving for 30 years than saving for just ten years; however, you would be wrong. Because of the impact interest has on the money you save, you would actually end up with more money under the first scenario where you only save for ten years.
How Should I Start My Retirement Planning?
Once you are convinced of the need to start retirement planning as early as possible, the next step is to actually get started. Retirement planning, like estate planning, is highly personal. You should consult with both an experienced estate planning attorney and financial planner to help you create the framework of your retirement plan. You should also look into any retirement planning benefits your employer offers. Although employer sponsored pensions are a thing of the past, your employer may offer matching contributions to an IRA or other assistance with your retirement planning. The most important thing you can do for you and your future is to get started as early as possible with your retirement plan.
If you have additional questions about retirement planning, contact an experienced North Carolina estate planning attorney at The Law Offices of Cheryl David by calling 336-547-9999 to schedule an appointment.