How to Plan for Your Retirement Like an Adult
Hello, I am Elisha. I like to talk about money. I worry that you’re not saving for your retirement. No, really, I worry a lot.
The idea of age 67 is unfathomable when you’re 25, and yet you need to plan for it then. It’s still unfathomable at 30 and 35, and yet you need to plan for it then too. If you aren’t planning for it by 45, well, age 67 might be unfathomable.
Age 67 is the government’s age for retirement for anyone born after 1960. We’re so bad at planning for our golden years that we don’t even get to do it at the golden age of 65 anymore.
I’ll admit, planning for retirement seems absurd when you have to pay student loans, rent, and hell, even groceries. Money is tight when you’re first starting out. Oh, hon, I remember the days of counting coins in the change jar so I had enough money for the bus to get to work. Some meals were smaller than my stomach wanted. I sewed the tears in my jeans because I didn’t have enough money to afford a new pair. Also, I’m really bad at sewing so I did an awful job, but I could afford the embarrassment, I couldn’t afford even a cheap pair of jeans at Target. But I still put 10% of my paycheck into an IRA back then.
The thing is, you’re getting to get old and you might get sick or weak and what do you do when money is tight then? It gets harder to scrimp and save the older you get.
So, here’s the brutal truth about why we plan for retirement: nobody else is going to do it for you. Social Security is going to collapse, and even if it wasn’t, it’s not enough for most people to live on. Your 3% contribution to your 401(k) will have you living below the poverty level when you retire. While you may say you want to work until you die, illness might stop you. Your kids might be bigger fuck-ups than you are and need to get bailed out repeatedly. There might be a massive societal breakdown and your only chance of survival is through bribery.
Look, I don’t know what’s going to happen but that’s the point of retirement planning: you plan for the future so it’s bigger and brighter than the present. At the very least, you want it to be stable. You do that with your relationship, your career, your family. So, dammit, do it with your money too, ok?
How do you save for retirement?
If your employer has a 401(k) plan, sign the fuck up. If they match, contribute at least that much. So, if they match up to 5%, you better contribute at least 5%. If they match up to 10%, damn you’re lucky, and you better contribute at least 10%. It’s easy money. (Know when the funds are fully vested, meaning employer contributions may be taken away if you leave your job too soon. They do this so you stick around.)
When you inevitably ditch your shitty job for a new crappy job, remember to rollover your 401(k). Don’t let the funds sit in their current account to be forgotten about later and don’t cash out. Unless you’re nearly homeless, you should not take money out of your 401(k). You missed the entire point of it if you do and you’re hurting yourself in the long-term. You’re an adult now. Don’t self-sabotage.
But 401(k)s are often dependent on the stock market, which can be a rocky road. You also need to contribute to more stable retirement fund options. That’s where IRAs come in. They are independent retirement accounts. Your boss doesn’t fund them, neither does mommy or daddy. You do it. You do it because you’re an adult. You do it even if you have a 401(k). You do it because everyone should have an IRA.
You contribute to an IRA so you have money for food when you’re old. You contribute at least 5% of your paycheck, preferably closer to 10%, in your IRA. You do this as soon as you get a job. You do this when you get promoted, when you move on to a new job, when you buy a house, when you start a family, when you start your own business. You do this forever.
A Roth IRA allows you the option to take money out to pay for a down payment on a house, medical insurance if you’re unemployed or education expenses without penalty. You pay taxes on it now though and there are income limits to qualify.
A Traditional IRA doesn’t let you take money out without a hefty penalty but you don’t pay income tax on the cash until you withdraw the funds.
Both offer tax benefits that will vary on the government’s whim. Current IRA contribution limits are $5,500 a year. Most of you can afford $5,500 a year. Really, you can.
You should diversify your retirement savings too. A 401(k) and an IRA are not enough. Oh god, I know, this is a lot to take in. But you don’t listen to the same record all day, every day for the rest of your life. You diversify your music and you should diversify your investments too. This is an advanced level topic though. Talk to a financial planner about that.
You still contribute to your own retirement fund even if you get married. I don’t want to be all doom and gloom about this, but the only person out there forever devoted to you is, well, you. Don’t ignore your savings plan because your wife is “the money person.” Don’t ditch your IRA because your husband has a stacked 401(k). If divorce, death or disability happen to either one of you, you’ll be happy you kept funding your own account.
You still contribute to your retirement fund when your kids go to college. You still contribute to your retirement fund when you’re a millionaire. You still contribute to your retirement fund when you have more money than Apple. You contribute to your retirement fund until you retire and cash out.
That $15 check your grandmother still sends you for your birthday? Put it in your IRA. That bonus you got for a job well done? Put it in a CD. That tax refund you got from the IRS? Buy treasury bonds.
If you can’t do all of that, your expenses are too high or your income is too low. Fix it. Move in to a smaller place, get roommates, cut back on going out, get a new job, ask for a raise, do freelance work. Look, you’re an adult now. Get your shit together. Saving money needs to be part of your budget.
By age 35, you should have at least your annual salary saved for retirement. By age 45, you should have three times your annual salary saved. And by 55, five times. And when you retire at 67, you should have at least 8 times your annual salary saved for retirement. Will you?
You may have caught on that planning for retirement is mostly about saving money. Well, yeah, it is. When you’re retired, you’re not working. Or maybe you do get a part-time job to stay busy, but you’re certainly not making as much money as you once were. You need to save up a lot of money to pay for your standard bills (utilities, groceries, transportation) as well as medical bills that are likely to increase as you age and any luxury you have earned after a lifetime of labor (a cruise around the world, an RV trip across the United States, a house full of pinball machines). There are always surprise expenses too. If you have kids, they’ll continue to be an expense, especially if they give you grandchildren. The hard part is you have no idea what’s going to happen or how long you’re going to live so you have no idea how much precisely you need to save.
So, you’re gonna hate this one, you’ll need to save more than you need. Leave money to your kids, your favorite charity, or a complete stranger when you finally die. It’s like a going away present. That means you need a will. You should already have one, actually. Don’t leave a financial mess for your loved ones to sort through when you die.
How do you limit expenses when you retire?
You cut back. Really, you should always cut back. There’s a lot in our lives that we just don’t need. Cut out the shopping sprees and the phone apps. Skip that last drink at the bar and put down that book you’ll forget to read. You don’t need it. When you’re dying, you won’t remember that you did it. Some of my happiest memories are of adventures that didn’t cost a dime. I’ll remember those when I’m on my death bed. Focus on what matters.
You buy a house now so you don’t have to pay rent when you’re 70. Ok, maybe that one is unexpected, so let me explain.I hear a lot of people talk about how they don’t want to be in debt, that they don’t want to have a mortgage, they never want to owe money, but I’m sure they also don’t want to decide between rent and arthritis medication when they’re old and in pain. Just buy a house, ok? Pay off your mortgage before you retire. If things get bad, you can get a reverse mortgage and screw your kids out of an inheritance. Whatever, that’s your choice, and you want as many options as possible. (There are reasons not to buy a home, sure, but I think most people should.)
You sign up for Medicare the day you are able to. This is in the distant future so mark it on your calendar now. If you sign up late, your benefits may be limited and there’s just no reason for that. (Medicare might collapse too, who knows.)
You take care of yourself now so you’re healthier and happier longer. Eat right, exercise, sleep, have sex, smile. It makes a difference.
Alright, that was a lot to cover and here’s the point: retirement planning isn’t actually about retirement at all. It’s about living well now. Living well includes being prepared for those rainy days and making smart decisions for the future. Living well isn’t living extravagantly or recklessly. Living well won’t rob you of crazy stories or rad Instagram pics. Living well allows you to be fully invested in your life, to make the most of it, and to be the best at being you for as long as your body will let you. When I hear that you aren’t saving for retirement or don’t have a savings at all, I wonder what else you’re missing in life. The stress of living paycheck-to-paycheck eats away at you, the inability to leave your shitty job because you can’t pay rent without it makes you even more miserable, that tension brings unhappiness in your relationships with family and friends. You can do better than that.
What do you need to start doing now?
- Saving money
- Putting that saved money in different accounts
- Cutting back on things and making more money
- Enjoying your life to the fullest
There. Your retirement has been planned.