It’s easy to view retirement as a distant "next chapter," but the best time to prepare is actually long before you plan to leave the workforce. It can become of utmost importance to follow the Franklin Covey rule, "begin with the end in mind". Whether you dream of sitting on a beach or spending time with grandkids, having a specific vision for your future will help you stay focused on the work required to get there.
To build a solid foundation, consider these three essential steps:
Estimate Your Future Expenses: Calculate your current spending and then adjust for how costs like housing, transportation, and healthcare might change. Experts suggest you may need to replace 70-80% of your pre-retirement income.
Maximize Tax-Advantaged Accounts: Use a mix of 401(k)s, Roth IRAs, and traditional IRAs to suit your tax strategy. If your employer offers a 401(k) match, prioritize contributing enough to get that "free money" before exploring other options.
Harness the Power of Compounding: Even small amounts saved in your 20s can grow exponentially. This is why the time value of money is so important to understand. Often the best thing to do is focus on a diversified portfolio to provide balance, stability, and long-term growth.
A question, we often get here at Kobo Wealth Strategies when we meet with potential clients is "am I on track for retirement"? It is important to note that everyone's needs will vary. However, we usually suggest some basic benchmarks as a starting point for the conversation. When you hit certain ages, you might want to consider whether your retirement savings match these targeted numbers as a guide.
| By Age | Savings Target |
| 30 | 1x your annual salary |
| 40 | 3x your annual salary |
| 50 | 6x your annual salary |
| 60 | 8x your annual salary |
The bottom line is retirement planning is not about being perfect. Instead, it is about being consistent. If you're behind, don't panic. When you hit the age of 50, you have something called catch-up contributions you can make to your retirement accounts. In some instances, the closer you get to retirement we can strategize around when to begin taking social security or utilizing other financial vehicles to establish consistent retirement income. No matter what, it is about having a plan and adjusting that plan to what is going on in your life.
Other considerations as you prepare. One of the largest unknowns in retirement is what would a major health event and the costs associated with it do to my retirement plans? This is something that we always advise clients to have a plan for. Whether it is establishing long-term care insurance or establishing savings earmarked for such possibilities, we should plan accordingly. As always, if you have specific questions about what was discussed here or you just want to talk more broadly about your financial situation, feel free to contact us here at Kobo Wealth Strategies.