5 Steps To Build A Winning Retirement

Step #1 – Be Greedy|Always Pay Yourself First

  • Save 1st, Spend 2nd

When financial planners advise you to pay yourself first they mean that you should invest some of your income every month before you spend any of it.

You do not have to invest all of your paycheck or large amounts, saving regularly in small amounts will build you a winning retirement plan over time.

  • Pay Forward

Delay the instant gratification you get from buying stuff; instead pay forward to your future.  Invest money for your future by contributing to a retirement plan on a regular basis; this can be a 401k retirement plan or an Individual Retirement Account.

The best decision you can make every time you receive a paycheck, raise, bonus or tax refund is to invest some of that money before spending any of it…pay yourself first…pay forward.

If you are 20 something, you have over forty years to work towards retirement.  Take full advantage of those forty years, pay forward as much money as you possibly can afford to.

  • Do It Early & Often

Pay yourself first by investing early and often.   If you start investing at an early age, your money will have a longer time to grow.   By investing often you can slowly build up your retirement plan without feeling much of a financial pinch.

Tip #2 – Be Ready At All Times

  • The Earlier The Better

You may not be thinking about retirement if you are in your 20’s, 30’s or 40’s but you should be.   The best time to invest in your retirement plan is not when you are close to retirement age, but during your working years.

  • Physically, Emotionally, Financially

Be smart about your future.   Make sure that when you are physically and emotionally ready to retire you are also financially ready.

To prepare financially for retirement you will need to determine how much money you will need.  When you work with a retirement calculator to get your estimates be sure to include in your calculations the cost of your hobbies, health insurance and basic expenses for car and home.

Tip #3 – Get To Know Your Risk Level

  • Risk Is A Personal Thing

Investing can be frightening for some people, and that’s okay.   You need to get to know yourself.  You need to know what level of risk you are willing to accept.  There is no right or wrong answer, it’s a personal thing.

Do risky investments make you nervous?  When your retirement plan statements show negative balances do you lose sleep?   If you do, that’s okay, don’t stop investing because of this, just make adjustments to invest in a safer investment.

  • Levels of Risk

International, emerging markets and small cap investments rate on the higher end of risk.

Mid cap is a bit less risky.  Large cap is even less.

Balanced funds, income funds or lifestyle funds are the least risky.

Money market has no risk, but also no return (Hot Tip: you will not make money in the money market).

  • Get A Quarterback

If your employer includes a financial planner as part of your 401k retirement plan, work with that planner, they can quarterback for you.

Unbeknown to many employees, many 401k plans do include as part of the package, a financial planner for employees to work with.   You may be unaware of this benefit offered in your plan; ask your human resource department.

Tip #4 – Determine Your Time Horizons

  • Make investing in your retirement a priority

    Image via Wikipedia

    When Will You Do It?

The question you need to ask yourself, regardless of age, is when you want to retire?   The best time to ask yourself that is when you are in your 20’s and 30’s, not 50’s and 60’s.

You want to allow enough time to accumulate enough money to live on during the second half of your life, your retirement years?   You will be spending at least 20 to 30 years of your life in retirement.

Determine how long your accumulation period will be then use a retirement calculator to determine the amount of money you will need to invest.

Tip #5 – Stay The Course

  • Avoid Emotions

The only money that will be there when you get there is the money that you sent ahead.

Do not stop investing in your future; the best way to stay the course is to avoid emotions when you are investing.   The market will have its up and down swings over your lifetime; do not go emotionally up and down with it.   Stay disciplined, stay the course.