Your retirement isn’t a game of chance. It is not something to “hope for the best” about, trusting that a landslide of cash will shortly flow our way.
That’s not the way retirement works. And believe it or not, that’s a good thing.
You have more control over your retirement than you might think.
“You win at this game when your savings are sufficient to support the retirement lifestyle you want,” wrote The Motley Fool. “And the big levers you pull to make that happen are your choices about how much you save, and for how long.”
What do those levers look like? And, how can we set ourselves up for a rich retirement?
First, setting retirement goals help. Setting healthy goals for after our working years keeps us focused and determined to reach a variety of success levels that can pad our retirement with cash, as well as provide us with a happy retirement.
Healthy retirement goals include:
- Money to travel the world
- Getting (or staying) out of debt
- An emergency fund of 6 months living expenses
- Amassing enough wealth to pay for your grandkid’s college
Goals also mean that we are giving our retirement the thought that it deserves.
And, this leads to the importance of getting out of debt.
Debts will kill your retirement. Debts prevent us from saving and investing like we should because we owe that money to someone else. It’s not truly ours. The total consumer debt in the United States has passed $14 trillion. That is a ton of debt, and it keeps us from building wealth and saving for our retirement.
“Reducing high-rate debts and increasing your cash stores, for example, are two actions that will help you survive market volatility or even job loss — with minimal disruption to your retirement plan,” wrote The Motley Fool.
Investing consistently can help to build considerable retirement wealth. Over the long-term, investments – not just saving money, are what builds wealth for most people.
This includes funding our company-sponsored retirement accounts like a 401(k) or Roth IRA. It also includes any additional investments we make, like in brokerage accounts, businesses or real estate. The key with investments is to think of them as long-term sources of wealth.
“When COVID-19 is a distant memory, it won’t really matter if you purchased fund shares the day before a market crash or the day after,” said Fool. “What will matter is how many shares you have and what type of growth those shares can produce for you going forward.”
Remember that your 401(k) is a pre-tax retirement account, which lowers your taxable income and grows tax-deferred over the years. Taxes are paid upon withdrawal. A Roth IRA, on the other hand, is an after-tax investment account. That means Roth IRA money is not taxed in retirement when we make withdrawals.
Lastly, The Motley Fool stresses that you should not touch your retirement account until retirement. “It’s very hard to recover from a sizable 401(k) withdrawal,” they wrote.
“Taking money out of your 401(k) also exposes that cash to creditors. Your 401(k) balance is normally protected in a bankruptcy proceeding, but you lose those protections on any funds you withdraw.”
While you cannot control everything, you can control your reaction to what happens in the world. And, being smart with your money by investing, minimizing debts, and thinking long-term can set you up for a long and rich retirement.
And, those are things that you can control.