Published by Sidney Meriweather, Relationship Manager
I was sitting in class for one of my CFP® courses, and the professor asked me, “When do you plan to retire?” I really couldn’t come up with a good answer other than, “maybe 65?”
You see, at 24 years old, I’m barely thinking about what I’m going to be doing 10 years from now much less 41 years from now. However, I work in the financial planning industry. Planning for retirement, talking about retirement, modeling retirement, the list goes on-and-on of the amount of time I spend a week thinking about other peoples’ retirement.
So, back to the question, “When do you plan to retire?”
This is a loaded question for anyone near my age. The decisions we’re making in our mid-twenties through early thirties have a huge impact when we finally start to think about this elusive concept of “retirement.”
So, let’s ask a few basic questions for all young professional to be thinking about:
HOW MUCH DO I NEED TO LIVE?
Another way of saying this is how much does my lifestyle cost me? Do I spend $2,000 a month on all combine living expenses? $3,600 a month? What is that number?
I can’t stress enough how important it is to have a realistic idea of your spending. I regularly talk to friends about financial stress and hear repeatedly, “but I just don’t know where the money is going.” That’s a red flag.
I would recommend printing out three months of statements from your checking account and credit card bills. Then intensely categorize your monthly expenses. This can be grouped into non-discretionary spending, what do you NEED to spend money on, and discretionary spending, what do you WANT to spend money on.
For most young people the amount of money that is being spent at restaurants, coffee shops, fast food, and entertainment are much larger than they realize. I can speak from personal experience when I say this will really put a reality check on your financial priorities.
Once you crunch the numbers, come up with your monthly budget. Allow for the occasional treat but be disciplined to save and spend responsibly.
HOW MUCH SHOULD YOU BE SAVING?
You can look at saving in a variety of ways. There’s the emergency fund you build in a savings account, the fun money for your next getaway, and there are long-term savings for things like retirement, home down payments, etc.
When you’re first starting out in the workforce you may be financially strapped by the lower salaries and opportunities that come with entry-level jobs. This means that trying to save can feel much harder, but we all know that the earlier you start healthy habits the easier it becomes.
Commit to saving a percentage of your salary or a specific dollar amount a month. If you save 10% of your $40,000 annual income that’s already $4,000 in savings by the end of the year. You could set up a monthly automatic deposit from your checking to your savings of $333 a month to reach your goal and get accustomed to living without that extra few hundred dollars.
If your employer offers any kind of compensation in the form of retirement start putting in immediately. If there’s an employer match opportunity, put in enough so that you receive the full match from your company. We call this the “free money” in our office.
This offers both a deduction in your income taxes for the year, and it gives you peace of mind knowing that you’re already planning for a financially secure retirement.
As you grow in a career and begin to include things in your financial picture like a spouse and kids, you’ll already have a foundation of healthy financial habits that set you up for success.
LIVE IN THE NOW AND IN THE FUTURE
I’m a big advocate of living in the moment. I want to experience life and culture. I want to meet new people and see the world. I have big goals and dreams for my future, and all these things seem to need one thing, money.
That’s why it’s so important to know what I NEED to spend versus what I WANT to spend money on. I think we’re all called to be good stewards of our finances. If you want to take that vacation with your best friend to NYC next year, then skip the daily latte from Starbucks, don’t get your nails done, or skip going out with friends on Saturday and ask everyone to come over for a night in instead.
You can learn to live without in the moment so that you can check things off your bucket list later. Practice the art of saying “no.”
SO, WHEN WILL YOU RETIRE?
While these questions may not feel like they help you answer, “when do you plan to retire” I know that starting to live by these guidelines while you’re young will allow you more flexibility to answer the retirement question as you get older. You’ll be making wise financial decisions, your money will have been compounding throughout your career, and hopefully, you’ll get to answer honestly.
If you would like advice on your personal financial situation a wealth advisor on our team would love to talk to you today, so give us a call at (512) 869-3003.