How to budget for retirement.

Retirement is often referred to as “the golden years” ­­­­­­— a chance to relax and explore the world after a lifetime of work. But with the increasing cost of basic living expenses like food, shelter, transportation and healthcare bills, maybe they should be called “golden” because it feels like you’ll need a pirate’s chest to afford it.

Managing your finances when you are no longer employed may seem intimidating. And how do you budget for your retirement down the road without going broke today?

Retirement funds

Whether your employer offers a retirement fund, like a 401(k) or a traditional IRA, or you’ve set up an individual retirement account through a Roth IRA, putting money in a retirement fund is a great way to save for the future while also receiving tax benefits.

According to CNBC, the Center for Retirement Research at Boston College found that households need about 70 percent of preretirement income to meet their expected standard of living.

Our experts in Northwest Retirement Services report:

  • Social Security will replace around 25 percent of pay for high wage earners
  • 50 percent of pay for lower wage earners
  • An overall average of only 36 percent of (retirees’) final inflation-adjusted earnings

You will need to set aside an appropriate amount to make up the difference.

Since each individual’s situation is unique, our Northwest Retirement advisors work with individuals to determine appropriate savings and investment strategies for an adequate retirement. We consider your age, the amount you already saved and your expected retirement age to help you determine the amount. As Investopedia explains, if you start saving at 25 you only need to earmark 10 percent of your annual salary to retire at 65; if you wait until 70, you’d have to save only 4 percent annually. Overall, it is best to start putting money in your retirement fund as soon as you can.

Investments

“If you stashed $50 a month under your mattress for 30 years,” Lifehacker personal finance expert Melanie Pinola writes, “you would end up with $18,000, but if you invested it and earned just 5 percent, you would end up with almost $40,000 – at 8 percent, that figure becomes $68,000.”

While it would be difficult to live off of $68,000 during your entire retirement, the situation in this example shows how you can add a significant amount of money to your fund by investing it instead of letting it sit untouched over time.

Most experts suggest splitting your investments into stocks (which offer long-term growth, but higher risk) and bonds (which offer short-term growth, but lower risk) in different ratios as you age. Time Money recommends the following investment* breakup:

  • Age 25 to 34: 80 percent stocks – 20 percent bonds
  • Age 35 to 44: 70 percent stocks – 30 percent bonds
  • Age 45 to 54: 60 percent stocks – 40 percent bonds
  • Age 55 to 64: 50 percent stocks – 50 percent bonds

 

If you have questions about retirement planning, Northwest Investment Management is here to help. Contact us today at 1-877-300-3454 or visit (personal invest).

*Investments and Insurance: Not FDIC Insured. Not Bank Guaranteed. May lose value. Not a bank deposit. Not insured by any government agency.