You know you need to start preparing for retirement, but you aren’t sure where to start. How much money do you need to make that initial investment? Where should you put your money? How do you manage your investments over time?
Personal retirement planning can feel daunting. But it doesn’t have to be. With the right game plan and a little help from VectorVest along the way, you can make your vision of retirement a reality. Our software helps you pick the right stocks for retirement and manage your positions over time. This allows you to enjoy peace of mind knowing you’re set up for the future you’ve always wanted.
In this guide to building your personal retirement plan, we’re going to address some of the questions that are undoubtedly on your mind right now. And, we’ll provide you with some key tips for taking action and getting started. After all, the sooner you start, the better off you’ll be. Here’s why…
Why Start Personal Retirement Planning as Early as Possible?
We wrote a complete guide on the importance of investing early for retirement. But really, it’s as simple as this: time is on your side.
By building and implementing a personal retirement planning strategy as early in life as possible, you can take advantage of the compounding effects of time. You can spend far less to achieve your dream retirement if you start at 25 than if you start at 35. Why work harder and invest more than necessary?
This point is best illustrated with an example. Taking the 25-year-old-version of yourself that we just described above, let’s say you begin your journey to retirement with a modest $6,000 initial investment. That would turn into a lump sum of $240,000 by the time you retire at 62 (assuming the market average rate of return). Meanwhile, the 35-year-old-version of yourself would have to invest $16,200 to get to the same figure.
We say all this to encourage you to take what you learn from this discussion today and apply it – don’t wait. With that said, let’s talk about another important element of planning for retirement: hiring professional help or trying to handle it yourself.
Is Personal Retirement Planning the Right Approach – or Should You Get Professional Assistance?
There are two approaches to getting started planning for retirement – doing it yourself or hiring help. And of course, there are pros and cons to each.
Hiring a financial advisor can be tempting – especially if you’re busy. But is it worth hiring a financial advisor? Here’s the reality of working with these guys: they are just going to tell you to dollar cost average and recommend investment vehicles you could purchase all on your own. Compared to their fees, they simply don’t deliver an adequate return.
By handling your personal retirement plan on your own, you can rest assured the plan you come up with is aligned with your best interests – and not the incentives of someone else. Moreover, you can easily make adjustments to your plan as necessary. You won’t have to jump through hoops like you would if you had your retirement account managed by a financial advisor.
And with the money you save on their fees, you can allocate more towards your retirement account – and get to your goal faster. Here’s another thing many don’t realize: all the information and resources they have are available to you as well. These are all reasons why you don’t need a financial advisor. And below, we’ll point you in the right direction. Let’s discuss some tips for getting started.
Getting Started With Personal Retirement Planning
The hardest part of personal retirement planning is just getting started. After you take the leap and make that initial deposit into your retirement account, it’s as simple as taking an hour or two a week to manage it. And frankly, you can automate the process even further depending on the specific strategy you employ.
But how do you get to that point? It starts with laying out your goals. So, let’s start there.
Determine Your Desired Retirement Age
The first step to building your personal retirement plan is to determine what age you want to retire by. For the average person, that’s somewhere around 60. But there are people who retire before their 40s – and there are people who delay retirement because they love what they do.
By figuring out how many years you have until you can call it quits and officially retire, you can work backward and figure out a better estimate of how much you need to save. Don’t stress too much about the specific age you choose, it just needs to be a ballpark number.
Your estimated retirement age may change over time too, which is ok. But, that’s why it’s better to start early in case you end up wanting to retire sooner than originally anticipated. What you don’t want is to be forced to push back retirement because you don’t have enough saved.
What Kind of Retirement Lifestyle do You Want?
Next, figure out what your retirement lifestyle is going to look like. Retirement looks different for everyone. And thus, retirement costs are different for everyone. That’s why sitting down and coming up with a detailed vision of your dream retirement is an essential first step.
Do you want to travel the world? Do you want to spend your days on the golf course? Do you want to move closer to family? Figuring out how you want to spend your time – and what that’s going to cost – is a critical aspect of your personal retirement plan.
If you’re unsure, that’s ok. You can always make changes to your plans as you go. The main point is that you have an idea of what you want in mind so that you’re not just shooting in the dark when it comes to saving.
It’s also worth noting that you don’t have to account for all your income to stop after retirement. We have a detailed guide discussing how to invest after retirement. There, you’ll learn that there are ways to live off just the dividends of your investments – or off the real estate investments you’ve made. With that said, you do want to make sure you have a sizeable nest egg to support your lifestyle. So, let’s address the most important question at hand: how much do you need to save each month?
How Much do You Need to Save Each Month?
Now that you know how much time you have until retirement and what kind of retirement lifestyle you want, it’s time to start calculating how much money you need to save.
And the answer to this question isn’t as simple as it seems.
You see, when most people think about retirement planning, they fixate on a dollar amount. They believe that if they have $1 million saved by the time they retire, they’ll be all set. But there’s one big problem with that thinking: life expectancy.
You have no idea how long you’re going to live. And thus, you don’t know how long your retirement savings need to last. If you’re lucky and retire at 60 but only live until 70, $1 million is more than enough. But if you retire at 60 and live until 90…$1 million probably won’t cut it.
And as life expectancy continues to climb, your retirement is only going to cost more than it has generations before you! So, assume you’ll live to 100 to be safe. Worst case scenario you save more than needed and you leave something behind to your family – or you live a more comfortable/lavish retirement lifestyle.
At that point, you need to calculate your monthly retirement income needs. This includes things like food, housing, healthcare, entertainment, travel, and any other expenses you anticipate having in retirement.
Again, don’t stress too much about the specific numbers here. You can always make adjustments as you go. The important thing is that you have a starting point to work from. Now what?
Let’s say your retirement lifestyle is going to cost $50,000 a year. You’re retiring at 60, and plan to live to see 100. You need $2 million saved up to support that lifestyle. Of course, that’s not really factoring in generating income from investments for retirement. However, it’s a good starting point. From there, you can start to work backward and factor in the average rate of return coupled with how many years you have to get that $2 million saved.
If you’re starting at 25 years old, you can invest under $1,000 a month. However, at 35, the figure is closer to $2,000. Of course, this is also assuming you aren’t starting your investment account with an initial nest investment – which most people do. You should factor this into your calculations as well.
Where Should You Invest Your Money?
Now you know what sort of monthly payments you’ll need to make to save for retirement. But should you just let that cash sit in a low-interest savings account for the next 20-30 years? You could – but there are far more efficient ways to make your money work for you.
There are so many different types of investments for retirement, and they all have their unique pros and cons. You could look into the best index funds for retirement, or look into long-term value investing in the stock market.
While investing in the stock market takes more time than just contributing to a simple IRA or ROTH, you have the opportunity for much higher profits. And these investments will deliver returns after you’ve retired – so you can live off the profits and enjoy a more lucrative lifestyle. It’s actually easier to start investing in the stock market than you think – you just need the right tools. That’s where VectorVest comes in – more on that in a moment.
You could also consider real estate as an investment vehicle. Renting out properties is a great way to generate income in the here and now. And you can continue living off the rents of your tenants in retirement, or sell the properties and use the cash to support a more comfortable lifestyle. However, getting into real estate is tough – it requires a lot of capital on hand. Thus, REITs may be a great choice – these are a more accessible real estate investment anyone can partake in.
Personal Retirement Planning Made Easy With VectorVest
The best retirement investment strategy is to diversify the allocation of your cash across different investment vehicles.
You should contribute to a low-interest savings account as a safe, steady approach to retirement planning. But, you can also generate higher returns and get to retirement quicker through more active investment strategies like trading the stock market. And even if you don’t have experience trading in the stock market, we can help.
Our stock analyzing software tells you exactly what to buy and when to buy it. You’ll also be the first to know when things change and it’s time to sell. If you’re looking to invest in the stock market for retirement, you can pull up our list of the best retirement stocks and pick the highest-rated stocks – it’s that easy.
Our system has outperformed the market for decades – and we can help you build a retirement portfolio that does the same. You can even take your investments on the go with our stock advisory app. See it in action with a free stock analysis.
Final Thoughts on Building Your Personal Retirement Plan
As you can see, getting your personal retirement plan developed and executed isn’t as complex as it may have initially seemed.
It really just requires you to think about what sort of retirement lifestyle you want, and when you want it. From there, you can work backward and determine what that lifestyle is going to cost. At that point, it’s as simple as allocating your cash across the right investment vehicles and managing it over time.
With the help of our intuitive software, you’ll be able to effortlessly build a profitable retirement portfolio with safe, reliable, dividend-paying stocks. So what are you waiting for? Get started today while you still have time on your side!