Financial Planning for the Future

Key Steps for Pre-Retirees to Reach Their Goals

As you move closer to retirement age, financial planning becomes a top priority. For pre-retirees in the 40-55 age range, this is a critical time to build a strong foundation and fine-tune your financial habits to secure your future. While the path to retirement is unique for everyone, a few guiding principles can make the journey clearer and more achievable. Here, we’ll explore daily spending habits, budgeting strategies, and ways to “catch up” if you’re looking to boost your retirement savings.

Daily Spending Habits & Financial Goals

We all enjoy a daily treat – be it coffee, energy drinks, or dining out. While these indulgences might seem small, they can add up significantly over the years. Here’s a quick perspective: a $5 coffee habit could equate to $1,825 annually. When you multiply that by 20 years, you’re looking at $36,500 that could have been invested or saved for retirement.

Financial planning isn’t about cutting out all the pleasures in life; it’s about finding a balance that aligns with your long-term goals. Consider adopting a mindset where these small expenses are weighed against future needs. By simply moderating some of your discretionary spending, you can redirect those funds into savings or investments that support your retirement goals. This doesn’t mean you need to give up everything you enjoy – just take stock of where your money goes and adjust as needed to meet your goals.

The 50/30/20 Budget Model

A classic approach to budgeting that can work well for pre-retirees is the 50/30/20 rule. Here’s a quick breakdown:

• 50% for Necessities: This includes housing, utilities, groceries, insurance, and other essential expenses.
• 30% for Discretionary Spending: Dining out, entertainment, and other “wants” fall into this category.
• 20% for Savings: Retirement contributions, emergency funds, and other savings goals.

Following the 50/30/20 model gives you a solid foundation for managing your finances, but as retirement draws nearer, this model may need to shift. For example, as you progress in your career and start focusing more on retirement, you might consider reducing discretionary spending to increase savings to 30% or even 40%. Financial planning is adaptable – a flexible budget allows you to make adjustments as your priorities evolve over time.

Financial Catch-Up Strategies for Retirement

For those who may have started saving a bit later or want to boost their financial preparedness, “catch-up” strategies can help accelerate savings. In the pre-retirement years, maximizing contributions to retirement accounts can make a significant impact. If you’re over 50, consider utilizing catch-up contributions in tax-advantaged accounts like 401(k)s or IRAs to boost your savings.

Another approach is to adjust your savings allocations in your budget. For example, if you’re nearing retirement, consider shifting your budget to a “50/50” or “40/60” allocation model, where 50% (or 40%) of your income is directed toward necessities and discretionary spending, while the remaining 50% (or 60%) is funneled into savings and retirement accounts. This accelerated savings model can help bridge any gaps in your retirement plan and set you up for a more secure future.

Start Now, Benefit Later

The most important takeaway is that it’s never too early or too late to begin financial planning for retirement. Whether you’re examining your daily spending habits or adopting a new budgeting model, these adjustments can make a significant impact on your financial future. For pre-retirees, this is the perfect time to set the stage for a comfortable, well-funded retirement. By making smart decisions today, you’re investing in peace of mind and financial security for tomorrow.

Financial planning isn’t just about numbers; it’s about making decisions that align with your values and future goals. And with a solid plan in place, you’ll be well on your way to reaching your retirement goals.