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Statistically, the average American won’t start saving for retirement until the age of 30. That’s not even counting the growing number of self-employed workers who are navigating the financial landscape alone. You can safely estimate a few things, like your yearly contribution or whether you plan to have your home paid off before retirement.
If you want to retire comfortably, estimating the cost of your retirement is the most important step in determining the contributions you must make.
How much is inflation expected to rise? In 1970, a single pair of glasses that might have been sold to a 30 year old at the time cost roughly $18. Today, that same pair can go for over $400, not including the cost of an eye exam. That’s a dramatic change in just one item you will most likely need as you age. What about the cost of fuel (whichever source we finally decide to use) and food?
Tools like the Charles Schwab retirement calculator can help you form a realistic picture of how much money you will need by your desired retirement age, factoring in your investment style. Get inspired; read some of the real stories of hardworking people finally transitioning into retirement.
You are expected to live longer than previous generations, which means you will require food and care for longer. This is something each generation struggles with, but the fact is that medical costs rise as we age. Complicated procedures and long or short-term care as you age become costly and require us to pay deductibles and other large costs. Comprehensive medical plans will become more important, but you will also have to pay more out-of-pocket for them. Especially if you are part of the growing class of self-employed workers.
Our bodies will break down as we age, but we can practice a health life style now to help alleviate some of those potential costs.
Establish a side-gig even if you are gainfully employed. Respond to gig requests from Craigslist, or put your resume up on sites like Freelancer.com. The more sources you can use to get freelance work, the better you will be prepared if you suddenly lose a job. You should also plan to turn your first home into a rental property for alternate income. Focus some of today’s income on redoing the landscape or repainting the property. These small improvements increase your home’s value if you decide to sell, and make it attractive if you decide to rent.
Assume a safe retirement return rate below 8% to be realistic about the money you can save over time. To think that someone in his or her 80’s has seen multiple recessions throughout a lifetime is staggering. That should be a huge sign that accidents happens and markets are volatile. Continue to research alternative retirement savings that you can invest as your income level progresses. A 401k might look more attractive when you have more money to invest in it regularly.
Learn to shop for items “off season” and look for deals online. Last year’s LCD TVs are just as good as this year’s in most cases and they are often marked down for quick sale. Sites like eBay are great for buying used, and free shipping saves a bit of money wherever possible. Try to buy cars that are expected to depreciate at a slower rate so you can recoup some of your investment when you purchase a new car.
Cutting back on small purchases like coffee adds to your savings over time. If you spend on average, $10 per week on cups of coffee, you will save almost $16,000 over the next 30 years. Add that to any of your retirement accounts and making coffee at home starts to look a lot more attractive.