Financial management is not a onetime responsibility. It is a continuous process that starts at adulthood and continues till your retirement and beyond as well. The way you manage your finances has a great impact on your retirement savings.
According to the National Institute on Retirement Security, nearly 45% of the working-age household do not have a retirement account or plan and more than 60% of the working households with retirees have less than one times their annual income. This data is scary since you need your money to make your retirement more comfortable.
But, having a retirement plan does not guarantee an enjoyable retirement time unless you make the right financial decisions.
Here are the financial milestones you need to reach before you retire:
Start Creating Healthy Financial Habits By 25
This is the perfect age to begin your savings for the future. Create healthy saving habits and save as much as you can. Put the money towards emergency funds and health care. This is the time when you take more risk and switch jobs. Having an emergency fund gives you protection against any unexpected expenses that may come your way. In case you lose a job or quit your job, an emergency fund will cover your expenses for at least six months.
This is also a great time to start your retirement plan so that you can gradually build up the saving for that perfect retirement time.
Start paying off your debts by the age of 30
By 30 you have an idea what life is going to be after this. Soon, you will marry, have kids, buy a house, buy a car and have lot more responsibilities by the time you hit 40. At this time you need to make some major financial decisions:
- This is the time you start paying off your student loans and other debts including your credit card debts.
- Get a life insurance and make a will to make it easier for your family. It is a great way to provide your family protection in case something happens to you.
- Increase the percentage of the money you are saving in the retirement fund. By 30 you are settled in your job and save more money comparatively. So it’s only reasonable that you put more money towards your retirement fund.
Take care of your mortgages between the age of 40 and 50
By the time you reach the age of 40, you should be more comfortable financially now that your student loans are paid and your kids going off to college or starting on their own.
- Try to pay off your mortgages. After the retirement, you will feel financial stress. Paying off the mortgages by the time you reach 50 or 55 is good news.
- Clear all the credit card debts you have before you retire. Retiring with debts hanging over your head is not a great idea. You should start paying off your debts way before reaching 40 so that you can easily reach the financial milestones before you retire.
Increase the retirement savings to the maximum
Since you never know how much you are going to need for your retirement, it is imperative to save more as your age progresses. If you are planning to retire in your sixties then you should plan on saving for 25 years of retirement life.
- You will need 80% of your annual pre-retirement income to live comfortably when you retire. You will need to increase the amount of money you are saving for your retirement as the time passes.
- Plan ahead and calculate how many years of retirement you need to save for. Your health condition will determine the years you want to plan for.
When you reach your 60’s
This is the time you need to fine-tune your financial goals. Now that you have saved so much and almost on the finishing line before you retire, you need to narrow down your goals. Seeking the help of a professional financial expert will help you establish a strong retirement goal.
- You may need to cut down on costs and save even more for the retirement.
- Make significant changes in your lifestyle, expenditure, and other activities that directly impact your retirement savings.
- Review your will and life insurance to make sure they are in tune with your current financial situations.
- Look for long-term care insurance and other schemes if you are married. This will help take care of your health and living needs at an advanced age in case you are incapable of taking care of yourself or have no one to take that responsibility.
These are the 5 important financial milestones that you need to reach before you retire. But, if you have already missed a few of them, it does not matter. You can start saving anytime you want. Have a plan for your retirement life and adjust your financial goals accordingly so that you can have a great retirement time.