Consider any individual at any period of his life, and you will always find him preoccupied with fresh plans to increase his comfort. – Alexis de Tocqueville
We spend an inordinate amount of time planning. We plan our vacations; we plan our Seder meal, and make plans with friends. We plan plan plan. What de Tocqueville, I think, missed is that while people plan for soon-to-be comforts, they tend to disregard planning for the long-term. After all, why bother saving a thousand dollars now, when you can enjoy yourself and go to a spa hotel for 2 days.
Don’t get me wrong; I am all for enjoying yourself and spending money that you are able to spend, but you need to plan for the future as well. I am not one who believes that you can create a plan for the next 30 years and if you follow it exactly you will end up exactly where you expected 30 years earlier. If living in Israel has taught me anything it’s that we have no idea what will happen tomorrow, let alone 30 years down the road. As Robert Burns wrote, “the best-laid plans of mice and men often go awry”, you can try as hard as you can but future plans don’t always work out as we like.
Though we are unable to predict the future, we still have an obligation to take certain measures that will with a certain probability, get us where we need to be financially secure in retirement.
Here are some tips to help you get started planning for the long-term.
How much will you spend?
For investors of modest means (defined broadly as $200-500k in investments, home owner, current income in the $50-70k a year range, and will receive bituach leumi/social security and some modest pension) the most important aspect of planning you can do vis-à-vis your retirement is to try and figure out your estimated expenses. My general principal is that leisure= money spent. The more free time people have, the more money they will spend. Whether it’s going with your spouse to a café for lunch, travelling a few times a year, or pampering grandchildren, the early retirement years can be costly.
If you can figure out how much money you will need, then you can figure out how much income you will need to generate to supplement your pension, social security and any other income sources you may have (part time work etc).
Pay yourself first
The most important aspect to build wealth is to start a consistent savings plan. Pay yourself first as financial planners say. Try and save between 10-20% of your income. When creating a budget the first line should be savings. Before food, mortgage, cable tv bill, put money away for long-term savings.
Now is the time
Individuals often wait to begin investing because they think that their accounts are too small. They think that if they don’t have hundreds of thousands of dollars, there is no point investing. I recently met with a couple that has been married for a few years and between some savings and wedding money had accumulated $40,000. They basically took the money and stuck it into a savings account at their bank which is earning zero interest. When I asked why they never invested the money, they said that they figured that it was such a small amount that it wasn’t worth it.
Don’t delay when planning your retirement. Sit down by yourself or with an advisor and start figuring out your goals and needs. Some solid planning will go a long way towards financial peace of mind in your retirement.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visitwww.aaronkatsman.com or email firstname.lastname@example.org.