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4 Basic Steps in Financial Retirement Planning - How to Plan for Retirement

Updated on December 11, 2014

Where Will You Be?

Two Rocking Chairs
Two Rocking Chairs | Source

It's never too soon to think about retirement!

Retirement planning is something that a lot of workers think about throughout their careers, while others don’t seem to put much thought into it at all. Whether you live comfortably or are scraping by from paycheck to paycheck, there are things for you to think about and try to implement as you think about retirement.

Start with small steps, such as cutting back on expenses and putting that savings into an account or retirement fund. Pay at least a little extra on your mortgage (at least most months) to cut the life of your mortgage. Finally, in order to assure a secure financial future after retirement, think about your interests while considering some kind of part-time job you might want to do during your retirement years.

Try not to feel overwhelmed about living life now while planning for the future. Instead, get started with basic steps to give you a boost and on the way to a more secure retirement.

More Ways to Cut Household Expenses

1. Cut Back on Expenses

While most people can find some way to cut back on expenses, however small, there are families who may fall short on their budget some months. If this is the case, you can still look at your situation and see where it is that you and your family can cut back.Look for small ways with which to start.

Look at everyday expenses. Consider replacing meals with cheaper ones each week. Pinto beans, fried potatoes, and cornbread go a long way for a family of six. Believe me, I know, as I was one of those four kids who felt as though she sometimes lived on that meal. That meal combination continued--often with vegetables from the garden--as the family situation turned into a single parent family. My mom cut back in areas such as these in order to put the money elsewhere in things that we needed.

My mom hung clothes out on the line to save dryer energy; I do that, too, and I rarely use laundry softener in the washing machine. Be creative in thinking how you and your family can cut back on common household expenses. Make your own lunches to take to work instead of going out or buying something in the cafeteria. Carpool when you can. Walking is even better. Buy your children’s clothes at garage sales. Children grow up so fast, and you can get nice, inexpensive clothes that are gently used and save a ton of money. Teach your children to be conservative in their usage of everyday household items. Show them how to not be wasteful.

Get out of debt before you invest!

2. Save Money and Invest

I know what many people think when they hear this. How can I save when I have four children and am barely getting by every month? By cutting back a little as discussed above, you can start to save a little. Just a little is something and will make a difference over time.

Maybe adding a part-time job to your full-time work could be the way to make extra money to put away for retirement. If you could find a job to fit your schedule, even if for just a few hours per week, this could make a big difference in putting a chunk of money into your retirement planning. You don't have to do it indefinitely, but a temporary part-time job might be the jump start you need to get you in the habit of putting away something every month for your retirement.

Whatever other ways you can come up with, you can do it! Compare your food budget, clothing budget, gasoline budget, and utility costs with previous months to start seeing the savings add up. Take the money you save each month and put it into a savings account. Save it for a rainy day to prevent using a credit card for an emergency, or save it to put into an individual retirement account (IRA) at the end of the year.

Do pay off all your debt except your mortgage before you choose how to put your money into savings or other investments. Then, learn more about the different types of IRAs. If your employer offers some kind of 401 plan with matching funds, put in the amount at least up to what your employer will match. The employer's contribution--1% or perhaps up to 5%--means that you immediately double your money! That's money you didn't have, so just do it.

Do what you can afford to do. Small steps are important. Remember that pennies turn into dollars over time. These dollars turn into many more dollars. Teach your children this as you teach them to save, too.

Financial Suzie Orman Tells WHY You Should Pay Off Your Mortgage Early

3. Pay off Your Mortgage Early

Having your home paid for by the time you retire will afford you some freedom—and a sigh of relief—in your “golden years.” With your mortgage paid for, you will never have to worry about rent again. You have your place to live. Now you can focus on paying for utilities, food and gas, insurance, and other expenses.

It goes without saying that before paying off your mortgage you should focus on paying off other debts, such as automobiles, student loans, and credit cards. Once you have these debts paid off, don't ever go in debt in any of those areas again. Now you can focus on your last big debt--the house.

Just by paying a few dollars every month on that house payment, you can significantly reduce the principal (what you owe) on the total loan amount. A rule of thumb is to pay the sum of one extra payment per year. Divide the amount by twelve to spread out the extra payments to make it easier. By doing this, you will cut around five to seven years off a thirty year mortgage. Plug in the amount of extra payments in a mortgage amortization calculator to see how many years you can cut off your mortgage.


4. Continue to Work Part-Time after Retirement

Now before you say "Wait a minute! I'm retired! I don't want to work!" let's think about this. What better way to give peace of mind now while you're still working, knowing that you could develop a skill or hobby that could give you extra income in retirement years and might even be fun!

I mention the "w" word (work) here because working part-time during retirement years is a security net that many people don't even think about when planning for retirement. I DO think about it, and it makes me feel more secure, knowing that I can take an active role in my retirement income instead of depending on that social security check always being there.

Think about your interests and what you might enjoy doing in retirement in order to make some extra money. Do you like kids? Maybe you would like to do some substitute teaching at the local elementary or high school? You can schedule the days you work around other plans you may have (family? travel?), so the hours are very flexible.

Do you have the itch to buy and sell things? If you enjoy yard sales and flea markets, think about opening up your own booth at a flea market. Make some money at your yard sale-ing hobby. Many people open up a few booths and actually make a living at it.

Do you have a skill such as sewing or landscaping? If you’re still able to physically handle it, offer your services for mending clothing or doing yardwork. If you can make something with your hands such as quilts, potholders, or other crafts, consider selling your stuff at local craft fairs or online. If you are good at woodworking, that opens up another avenue for income. Consider what you like to do, what you are good at, and what could bring in some extra income in retirement.

Do you need a certain percentage of your working income for retirement?

Planning on a certain percentage of your working income is a common recommendation for those thinking about retirement. For example, I've heard that a person will need 70% of their income in retirement, so someone with a $60,000 salary should plan to have $42,000 per year in retirement to live on, while someone who made only $20,000 could theoretically get by on only $14,000.

I disagree with this. There are years that I have made $20,000 and years I have made $60,000. On whichever salary, I was able to pay my bills as well as put some money into savings. With the “extra” from the higher salary, I didn’t live in more luxury, buying more clothes or furniture or big toys such as boats. Being a frugal person, I would put much of any surplus income onto my mortgage principal after putting a small amount (perhaps ten percent) into savings. Why would I need $42,000 to live on in retirement with no mortgage payment?

In my retirement, I plan to be frugal as I have always been, and thus I don’t need a percentage of the higher salaries I’ve had over the years. With frugality, I do hope it pays off in that I can splurge with a little vacation or something else in retirement if I want. For you, you’ll have to think about what type of retirement you want and what it will take to sustain that lifestyle. Figuring that out is a key part of retirement planning.

This kit really helped me--books, audio, materials . . .

I'm following my own advice!

I have always been a saver, even in low-paying jobs. I put a little away into an IRA every year and am following my own advice to pay off my mortgage early. Another piece of advice I’m using is to consider how I might earn money into retirement. As a freelance writer, I will continue to write to supplement my income in retirement.

There is more you can learn about financial planning and retirement plans. For now, if you will get in the mindset to save where you can, pay more on your mortgage, invest every year, slowly you will make progress toward your goals. In the meantime, too, think about your hobbies and interests that might give you added security (i.e. money), as well as enjoyment, in your retirement years.

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