In relatively simplistic terms accumulating funds for retirement is conceptually quite simple:
- Spend Less than you Make
- Automate your Saving
- Create a Diversified Portfolio
- Have a Long Term View
With a reasonable amount saved on a regular basis appropriately invested, will get you to a comfortable retirement next egg.
Of course the sooner you start the better! With compounding of returns, time and money can work wonders even with today’s relative modest returns and volatility.
If we could all start saving with our first job, this would be a relatively easy task.
Unfortunately the real world isn’t necessarily that easy.
Therefore the first step is to actually earn enough to be able to save after covering the basic necessities.
If you have the basics covered, the next step is to manage your spending plan to be sure that long-term saving are part of that plan. Basically be sure you are paying yourself. This is where the automatic investment plans come in to plan.
Initially the growth of your retirement plan is going to primarily come from you periodic contributions. The annual earning will seem quite trivial, but after a few years the earning will become a significant element of your retirement account. At this step, it is very important that you have managed your account to minimize investment cost and invested in a manner that will let grow at a pace that is consistent with your risk comfort level.
Finally as you near retirement, you will want to review your investment options and consider what risks you are willing to accept with these funds. This doesn’t mean that you become ultra conservative your account as you, especially if you have a spouse, are likely to have a couple of decades of retirement living expenses to fund.
Michael Kitces in his blog on this topic describes these steps as: Earn, Save, Grow, Preserve.
If you have any questions or concerns about the status of your retirement plans, let’s get together.