There is no trick involved in retiring comfortably. It’s often difficult to accept that you can obtain extraordinary results by ordinary means, but our desire to rely on a wing and a prayer can have devastating consequences on our retirement savings. Understanding the basics of your finances and investments can be as easy as reading a few finance and investment news articles on a regular basis.
The key factors to financial security in retirement are time and commitment. Here are 5 tips, which will help you pave the way to a comfortable retirement:
Always have a plan
The first step is to identify your goals. As a rule of thumb, you should aim at saving approximately 17 times your pre-retirement salary by the time you retire. This is, however, based on a certain set of assumptions: Therefore you may have to adjust your savings plan if your investment returns and spending habits deviate from the assumptions. It is important to note that the sum you are required to save to meet your goal will increase as you near retirement if you don’t start saving early enough. The earlier you start, the longer you have to benefit from compound interest.
You must account for inflation
Inflation erodes the buying power of your money; therefore your returns need to compensate for this effect. Risky, high-return investments can fluctuate wildly over the short term, but the key here is to remain calm. Instead focus on taking a long-term approach: Look at the returns over a 3 – 5 year period, since short-term fluctuations typically smooth out over time.