Retirement saving comes down to habit

This was originally published on Monday, 2 February, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: My co-workers and I have been having discussions about retirement. We feel that there is more that we should be doing to be prepared. One of the biggest concerns is that we are not financially ready, even though we are contributing to our retirement plans. What is the secret to effective retirement saving?

First, please let me thank you all for reading Money Matters and for your questions and inquiries over the years. This month is Money Matters’ fifth anniversary. I enjoy responding to your questions and assisting with your financial goals. I have learned so much from you all.

I am excited to hear that people are having discussions about retirement. Retirement is a topic that continues to be one of the top concerns many of my readers share. I wish I can say that there is a secret out there, and once you discover it you are set for life.

Instead, a successful retirement comes down to having a plan and putting it in motion

Those who live their retired life comfortably have planned a very specific strategy, including what age they want to retire and planning for rising costs of living.

The one thing successful retirement savers share is that it’s just not a plan but a habit.

  • Budget: This seems clear, but many people do not create a budget. Budgets always bring up negative feelings. They are associated with being boring and restrictive. Budgets are important. A budget can track your expenses, assist in identifying areas where you can improve, and help determine how much money you can contribute to your retirement without being unable to pay for your monthly responsibilities. Paying attention to how you spend will assist in motivating you to save.
  • Share: Talk with your spouse and other loved ones about your goals for retirement. Your budget will ultimately affect them as well. By being on the same page with them, you are more likely to achieve your goal. Talking about money can be uncomfortable, but it is a talk that all households should have.
  • Calculate your needs: What do you want to do when you retire? Do you want to travel or maybe retire to an exotic location? No matter what your retirement dream is, you need to figure out how much it will cost. Invest with a purpose. What are your day-to-day expenses going to be? Are you starting up a business? How much will it cost to move? Your income will be any retirement income from your employer, social security, and your retirement investments. Your investments should match your goals. There are free online retirement calculators that can assist to determine how much you will need to save now to reach your retirement goals. Talk to your employer. Some employers offer workshops that help in budgeting and saving for retirement.
  • Emergency planning: When a financial emergency hits, it is very tempting to use your retirement fund. But that should really be your last resort. It is very difficult to build up your retirement fund. The reason it grows is the compound interest on how much you have in your account. By removing a lump sum, you will decrease the amount of interest you earn. Most analysts suggest three to six months of income put aside in case you run into financial hardship.
  • Prioritize: After paying your monthly bills, where does your money go? Do you have other plans for your money before you contribute to your retirement account? If retirement is your priority, you will most likely achieve your goal. To help, put up pictures of your retirement dreams to remind you of what you are saving for.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

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