Aug

5 Easy Steps to Kick Start Your Retirement

R on August 26th, 2008

It is no secret that one of the keys to financial success, and in fact to a successful retirement, is planning. For any important event in our lives, we plan and prepare. We don’t buy a car without at least a little research or comparison shopping. We don’t buy or sell a house without talking to a realtor, checking comparables, looking at other homes on the market, and speaking with a mortgage broker. Hopefully, we don’t buy a stock or mutual fund without checking its past performance, P/E ratio, dividend payout, or other performance measure. So surely it seems reasonable that to retire successfully, some time, effort, and planning is required.

Retirement planning can seem so big, so overwhelming, that we may be tempted to put it off. If you don’t even know where to start, what can you do? Here are 5 Easy Steps, things you can do now, to get you on your way.

1. Pick a Timeframe. Want to retire at 62? Or maybe semi-retire at 50 and start a new business? There are many, many different ways to semi-retire, early retire, or just plain-old retire. So, spend a little time thinking about what you really want. If you need some help even coming up with options, take a look at this book: Work Less, Live More: The Way to Semi-Retirement. You are defining your goal, as of now. It’s OK to change it later. You may not achieve your goal exactly, or you may change it along the way. I thought I would be able to retire between the ages of 42 and 44; along the way I had to make some adjustments to my plan and ended up delaying a few years.

2. Track your Expenses. This may seem as pleasant as keeping track of every morsel of food you eat, but you have to do it. Use software like Quicken, or keep a little book. Either way, start tracking where your money goes. Do it in such a way that you can summarize by month and by year. Use categories that make sense to you. If this task seems daunting, just use a few large categories at first. I started keeping track of my expenses in Quicken, kicking and screaming along the way. Now I would feel withdrawal pangs if I went a day without checking in with my Quicken accounts.

3. Assess your Net Worth. I keep a speadsheet that I update periodically. Certainly you’ll want an update every year, maybe more often. I like to update about every 3 months, unless the market has taken a really bad turn. Then I may skip a quarter so as not to get an upset stomach, LOL. Some folks like to use NetworthIQ to track their net worth. Admittedly, I am still a little uncomfortable listing such personal financial data in a public site, but many people use this. Regardless of where you record it, essentially what you are doing is listing everything you own (home, other real estate, bank accounts, mutual funds, stocks, retirement accounts, cars, etc.) and subtracting your debt (mortgage, car loan, credit card debt, school loans, etc.). The result is your net worth. If you ever decide to run some of the popular retirement calculators on the ‘net, you’ll need this information.

4. Learn how to Invest. No, I don’t mean learn to trade stocks. But learn enough to feel confident that you know where you are parking your hard-earned savings. How much time did you spend evaluating your last major appliance purchase? Compare that to how much time you typically spend selecting the funds in which to invest your 401(k) money, or selecting a mutual fund. I highly recommend this book: The Bogleheads’ Guide to Investing for a no-nonsense approach to investment. You can start with baby steps - just deciding how to allocate your 401(k) funds, for example, then go from there.

5. Read as Much as you Can. There is so much information out there today. We have resources at our fingertips like never before. The internet is a wealth of information, some good, some bad, and some just plain old opinions. Read what you can, but consider the source and always find multiple sources. And read books. I’ve read so many books on finance, investing, retirement, and the psychology of money that I can’t even remember them all. But I do remember the good ones; I have my top ten list here: Books. And if you find one you love that I don’t have listed, please let me know!

It’s not that important where you start or that you may make some mistakes. The important this is to start. Begin with these 5 steps and you may be surprised at how the momentum builds.