- I’ve focused a lot on retirement planning now because I didn’t care enough to save when I was in my 20s.
- I want to be young and rich when I retire, so I need to be particularly strategic in my planning now.
- Financial advisors told me to spend less than I earn, diversify, don’t follow trends, and more.
- Read more from Personal Finance Insider.
Lately, my friends are constantly asking me why I’m so obsessed with financial planning for retirement. It’s a topic I bring up in almost every conversation I have with them, sometimes without realizing it.
The truth is, after neglecting my finances for most of my 20 years, I multiplied my plans tenfold. Not only do I want to be financially free now, but I want to make sure that when I’m ready to retire, I have the funds to live the kind of life I want to live..
I constantly ask everyone for tips on how to be rich in retirement, from friends to financial experts. Although there are different opinions and advice, there are certain rules of thumb that it is a good idea to follow. Here are five of those rules to keep in mind.
1. Spend less than you earn
Although it may sound obvious, scott alan turnerA financial planner says that one of the first rules you should adopt has to do with your spending habits.
“Yes, it’s a cliché, but you can’t beat bad spending habits. A family making a million dollars a year and spending $1.1 million is still broke,” Turner said. Set something aside each month for the future. The future will thank you.
2. Take advantage of work retirement plans
If you are employed by a company with retirement benefits, christian matzenA financial planner recommends leaning on the options offered to you at work.
“To be rich in retirement, you must take advantage of your employer’s retirement plans, such as a 401(k) or 403(b)Matzen said. “But most importantly, make sure you’re contributing enough to get matching contributions from any employer to set yourself up for success.”
3. Diversify your investments
When it comes to planning for retirement, it never occurred to me that there were so many different investment options. doug careyA financial advisor says that to be rich at retirement age, you must diversify your investments.
“There are so many diversified mutual funds and ETFs these days that there is no excuse not to diversify,” Carey said. “Diversify between companies and also between countries: make sure that at least part of your investments are international.”
“But by far the most important diversification comes from not having most of your money in one company,” he added. “This is a terrible idea when it comes to retirement investing: The money you put into one company should be money you can afford to lose.”
Ignore the financial circus
When you’re on the quest to build your long-term net worth and wealth, Turner says it’s important to filter out advice that may sound too good to be true.
“Tried and true advice based on academic principles doesn’t make the news; it’s boring, but it works,” Turner said. “Keep your investments simple and stick with things that have a proven track record. It’s really hard not to build wealth that way over time.”
Take a different approach when you’re young
If you start your financial planning for retirement in your 20s or 30s, Carey recommends taking a different approach that could pay off.
“When you’re young, invest almost 100% of your retirement money in stocks,” Carey said. “take advantage that you are young and have a long-term horizon before you need your retirement funds.
Stocks can be risky investments for older workers, but the market will rally if the portfolio has a long-term horizon.
“Stocks have always outperformed bonds for long enough periods,” he added. “There has never been a 20-year period where stocks have underperformed bonds in the US.”