Retiring rich is definitely harder these days than a few decades ago. Wages, which had increased without fail for nearly 30 years, began to stagnate in the mid-1970s. Jobs with employee pensions have all but vanished, severely limiting available means of income for today’s retirees. Thus, there are major forces beyond your control that are making retiring rich harder. So, don’t make it worse by neglecting what you do have control over.
Treat Your Retirement Savings Like A Business
A strategy to make saving more appealing is to treat your personal finances like a business. Many people struggle to manage their household finances, but at the same time, many people have no trouble running a profitable business. What if, they treated their personal finances like a small company? This shift in mindset can make a huge difference. Stop viewing saving as sacrifice, changing your mindset can make saving a pleasure instead of a pain.
Max Out Your Contributions
Make sure you’re maxing out your contributions to retirement savings. Contribute to an IRA even when you max out your 401ks. So many people forget they can do this, which can add another $11,000 to $13,000 a year in additional retirement savings. It seems so simple, yet many people simply don’t do it.
Figure Out How Much You Should Be Saving
Maxing out various channels of retirement contributions is important. But if you’re saving blindly, you’re setting yourself up for failure. Use the so-called “60% solution” to determine how much you should save. Limit fixed expenses like taxes, essential household expenses, rent/mortgage, utilities, phone, basic food, transportation, clothing, insurance premiums and other recurring bills to 60% of your gross income. After that, 20% is for long-term savings, 10% of that specifically for your 401(k) and the other 10% for luxuries and non-essentials.
Focus On Income Over Assets
Because retirement is linked to having a retirement goal, people obsess about their retirement “number”. The more you have saved, the better but this approach is misguided. Retirement has nothing to do with assets, it has everything to do with income to cover your basic expenses in retirement with some form of guaranteed lifetime income.
Armed with these fundamental yet too-often overlooked strategies, you can make your retirement dreams a reality.