Retirement planning can start at different points for everyone. Some start early and others play catch up as family, illness, or other priorities surface. If you understand the time value of money and compound growth as important components of planning, the earlier you start the better. While life and goals change, you need to have a starting point and quantify what you are trying to accomplish.

First, determine how much money you live on today as it’s the best determinant of your standard of living. To start, list all your current expenses (excluding taxes) recognizing that some expenses won’t be there when you retire. We offer tools that help you focus on summarizing your spending. Do not use rough estimates of percentages of income as they don’t always relate to your specific spending habits.

Pay yourself first. We’ve all heard it and it’s important to execute this simple concept. Save what you can and, even better, have a target. If you don’t have a target amount to save, then spending all that you earn is incredibly easy to do. The more you save, the more you accumulate, and, by definition, the less you spend. This is extremely important and prevents you from putting yourself in a position of being forced to reduce the standard of living you are accustomed to in your retirement. Having resources available will give you greater choices and flexibility in the future.

Be disciplined. It’s so important to keep your savings habit consistent and increasing over time. We all have habits like exercising, morning coffee, or watching a certain program—committing to saving for your future needs to become one of them. When bumps in the road arise, don’t stop saving, simply reduce your savings until you resolve the unexpected situation. This becomes easier if you have built up a good cash reserve (3-12 months of living expenses). The level of cash reserves is dependent upon your stability of employment, retirement income, monthly living expenses, and short-term needs. We all have choices on how we spend our money, but most people don’t relate them to their long-term plan and its impact.

Lastly, if you started saving later, you will have to make some difficult decisions. Should I relocate to an area with a lower cost of living, or should I work longer? What expenses should be cut or modified? These decisions can be avoided if you develop a long-term plan and stick to it. The tradeoff is worthwhile if you want to have a great retirement.

About the Author: Jan Kowal, CFP®

Jan’s passion for helping clients work towards their financial goals began almost 40 years ago. His planning is based on personal relationships and a true understanding of clients and their goals. Jan graduated from George Washington University with a BBA in Accounting and an MBA in Finance and Investments. He has been a Certified Financial Planner since 1984. Jan enjoys music, travel, cooking, and family time.

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