Saving for the Sunset

Planning for your retirement can feel overwhelming, even intimidating. As a Seattleite who has spent more than 35 years guiding clients in achieving their retirement goals, I’ve worked with people of all ages and incomes. Throughout the years, I’ve guided them through fears, implemented new approaches, and helped them shift their mindset and habits. The following are my top retirement strategies to set yourself up for success.

Plan Early, And Make It Fun

Here are two ways to get started. First, know where you’re spending your money. As you track expenses, mark whether they are a necessity or luxury. Next, create a budget, based on your necessity and luxury expenses. Rent, mortgage, and property taxes are necessities. Savings is a necessity. Get into the habit of saving early and often. Luxury items range from lattes to vacations. How much you spend on luxuries is up to you, based on what’s left after necessities.

Next, the fun part. I encourage clients to create a vision board for their “next acts.” Use a bulletin board, poster board, or any medium you like to capture ideas. Give yourself permission to dream. This is a powerful exercise to uncover your values and how you want your life to look.

Pay Yourself First

Necessities include paying yourself first. If possible, save 20% of your income for short-term savings (emergency funds), special savings (down payment for a house), and long-term savings (retirement). Do this first before putting money toward anything else.

Clients often ask, “But what about paying for my child’s education?” You can’t borrow for retirement, but you or your kids can borrow for the cost of education.There will always be tradeoffs.

Let Time Work Its Magic

Time is your best friend. Starting early means you benefit from the power of compound interest. Take this example from financial website Motley Fool: Imagine a one-time $1,000 investment compounding at 10% annually. It starts earning a mere $611 after the first five years. Yet, as time goes by, it earns years. Yet, as time goes by, it earns hundreds of thousands of dollars, hundreds of thousands of dollars, just through time and compound interest. It can feel anxiety-inducing to ride the waves of a changing economy. But research shows, over the course of 10 years, stock market returns tend to be positive. This discipline takes out the emotional temptation to sell when the market is low.

Prepare For The Unexpected

Here’s the less fun part: Life happens. When a spouse passes, you go through an unforeseen divorce, or health care issues arise, you must be prepared. Many clients, for example, are surprised to learn they only get to keep one Social Security income in the unfortunate event their spouse passes (the survivor keeps the higher of their own Social Security benefit or their spouse’s, not both).

The unexpected includes other events, like early retirement due to disability, moving residences, becoming a caregiver to an elderly parent, and more. Skeptical? According to Employee Benefits Research Institute, one in three Americans over age 65 have at least one disability, and 61% of disability-affected retirees report having saved less than was needed for retirement. Life- and long-term care insurance are excellent ways to mitigate these risks.

Create A Legacy Of Wealth

As a mother, clients often ask me how to create a legacy of wealth and avoid spoiling the kids. I believe it comes down to teaching children the value of a dollar early in life. Help them understand tradeoffs and get their buy-in on values and respect for a dollar. Do they want to visit a fancy ice cream parlor, or make ice cream at home? Help them prioritize. Should they rent a studio apartment after college or live with a few roommates. Which one fits the budget, and what are the tradeoffs?

Understand The Basics, Especially Women

Finally, take the time to learn the fundamentals of investing. Too often, I see women shy away from financial education. Or, once married, there’s always one spouse who defers to the other, and is often scared to ask questions for fear of looking stupid. There are countless ways to gain confidence. Join with friends to learn from each other. Ask an adviser to speak to your group, create an investment group, or work with a financial adviser to craft your plan. For women in particular — where the majority earn less than their male counterparts in the same occupations, and are often more conservative in their risk tolerance — there’s no room to leave money on the table.

Julie Prince is the founder and CEO of Prince Financial Services in Seattle. She can be reached at (206)-777-3445, at [email protected], or visit princefinancialservices.nm.com.