I tend to look at our financial journey as a series of projects with specific goals, or objectives. Each goal has a number of steps that must be taken to achieve it. Retirement is no different. Everyone probably has some sort of goal to save for retirement, or the day in which you no longer depend on a full-time salary. In other words, you can live off of your investments such as a 401k, Roth IRA, etc.
But, most people understand you can’t get where you’re going without some sort of plan. A plan can be the steps you need to take, or can even sometimes come in the form of a checklist. The checklist helps guide your way.
I liked a recent series of retirement planning checklists published by CNNMoney.com which I think make a lot of sense and make saving for retirement less ambiguous. The retirement checklists, what to do from 35 to 55+, can almost serve as the next level to Dave Ramsey’s Baby step 4, invest 15% of your income.
So, for example, the goal mid 30′s to early 40′s is to develop the habit of savings and your savings should be 1.5 times your salary. I’m not sure where they got the 1.5 times your salary, but it seems like a reasonable amount and is really the first time I’ve heard someone throw out a number.
Now, I know the amount depends on each person’s financial objectives and a number of other things such as your expected lifestyle at retirement, but I think it’s great to have some amount to target when saving. So, take it as just that; it’s a target you can shoot to achieve.
Here is the checklist they provide from mid 30′s to 40′s:
- Take advantage of your 401k match.
- Boost your contribution as your salary increases.
- Find other tax advantaged ways to save if you’re already maxing out your 401k.
- Save 6 months of expenses.
- Invest with the focus on growth. In other words invest mostly in stocks.
I think the key here is to position yourself by mid 30′s, if not sooner, to be socking away the savings whether that be in your emergency fund or retirement investments. Certainly, the only way to do this is to get out of debt fast and start the emergency savings early.
Another key point here is finding other tax advantaged ways to invest. Here’s what Money says:
Already maxing out on your 401(k)? If you make less than $120,000 — or $177,000 for married couples filing jointly — check out a Roth IRA. Already hitting the $5,000 annual IRA limit? Move on to investment options such as index funds that don’t expose you to stiff tax bills.
I think the best way is to start investing is with your company’s 401(k). Having the savings come directly out of your paycheck is a great way to get the money out of your hands before it’s spent and before Uncle Sam can get a hold of it. As an aside, the maximum amount an employee can contribute to a 401(k) in 2010 is $16,500 and for individuals over the age of 50, their catch-up contribution is $5,500. As the article suggests, there are a other tax advantaged ways to save if you reach the limit for the 401(k).
Finally, 10 years to achieve such a goal, 1.5 times your salary, is reasonable. The checklist approach, overall, is encouraging and motivating, in my opinion. So, if you’re in your 20′s or 30′s you now have some actionable steps to try and accomplish by your mid 40′s. Get them added to your financial to do list and start putting your plan into action now!
What do you think of this checklist? Is this something you can act upon? Would you add any savings or investing steps to it?
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