If you have already taken the time to talk to retirees about their lives, you know that they can tell great stories and sometimes great advice on everything from relationships to money. A recent study by the director asked retirees to share some of the financial advice they would like to give their younger selves, and the top five answers, listed below, have come up repeatedly.
Following these tips may not prevent us from making a money misstep again, but if you follow them as best you can, you may have a decent chance of a comfortable future.
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1. Start planning retirement early
Nearly 70% of retirees said they would encourage their younger selves to start planning retirement early: in their 20s, if possible. This is not always easy to do, especially for university graduates who have a lot of student loan debt. But even if you can only save a few dollars a month, it is worth reserving them for retirement.
Your contributions to early retirement usually end up being the most valuable because they have the most time to grow. If you invested $ 100 today and earned an average annual rate of return of 7%, it would be worth almost $ 1,500 after 40 years. That’s a profit of $ 1,400. But if you waited five years to invest that $ 100, you would end up with about $ 1,068 after 35 years, more than $ 400 less.
Even if all you have is an extra $ 5 or $ 10 in your wallet at the end of each month, after paying your bills and creating an emergency fund, invest it. This will make it much easier to save enough for retirement, because you will have more investment earnings to help you cover your expenses.
2. Keep educating yourself about finance
There is always more to learn about managing your finances. This is especially true for retirement planning because it takes decades and much can change in that time, including government rules on retirement accounts and our own lifestyle and plans for retirement. We need to know how to adapt to these changes to stay on track for our goals and make the best choices for our money.
One way to make sure we can do this is to keep asking questions and trying to do better. Learning more about investing, for example, can help you make smarter choices about where you will save your savings for retirement so you can grow your savings faster and maybe even retire earlier than you expected.
3. Stay healthy
Staying healthy may not sound like financial advice, but your health and finances can easily intertwine. If you are in poor health, you will probably visit the doctor more often and pay for more prescription drugs. You may also be forced to retire earlier than you expected, which leaves you struggling to survive on what you have saved up to that point.
Focusing on your health by eating well, exercising regularly, and learning healthy stress management strategies may not help you avoid health care costs in retirement altogether, but it can reduce them. This can lead to a longer and happier retirement, with more money to spend on the things you like, instead of medical bills.
4. Balance future savings with today’s life
Saving for the future is essential if you want to retire, but you also need to meet your needs and wants in the present. The movement known as Financial Independence, Early Retirement (FIRE) encourages people to cut their budgets to a minimum, often renouncing enjoyable activities, so that they can save as much of their income as possible and retire decades before their peers. There is nothing inherently wrong with this approach, but it is not something that will please everyone.
Not allowing yourself to do anything fun in the present can make it harder to follow your long-term savings plan. It is better to work out a long-term sustainable plan. Find out how much you need to save per month to retire whenever you want. And if that’s not feasible, consider postponing retirement or looking for ways to increase your income in the present so that you can save for the future and have some money to enjoy now.
5. Take advantage of corresponding 401 (k) employer funds
Nearly 40% of retirees surveyed said they would encourage their younger selves to choose a 401 (k) deferral percentage that would allow them to take advantage of their company correspondence. This is the free money you receive only to plan your future, but it is a limited time offer. If you don’t put enough money in your 401 (k) during the year to get the mail, you lose it.
Hopefully, you are already contributing at least enough to your 401 (k) to get your complete match, but if not, the first step is to find out how your company’s mail system works. Some may offer a dollar-for-dollar game, while others may offer $ 0.50 per dollar. Most companies limit their correspondence to a certain percentage of their revenue.
Once you know what you need to do, try to increase your contributions accordingly. You may have to make changes to your budget, but it is worth doing because it reduces how much you need to save for retirement.
The five responses above were the most common financial advice given by retirees, but they are not the only ones worth following. Think about your own financial history and what you would like to improve. Then, seek advice on how to do this.