Saving for retirement is all about priorities. Budgeting is a way to redirect your priorities. In fact, retirement planning isn’t as much of a decision “to spend or not to spend” as it is a matter of deciding when to spend. If you spend your money now, you won’t be able to save it, and it won’t be able to support you later on during retirement.
The most valuable asset in retirement planning is time.
The earlier you begin saving for retirement, the more you can accumulate. Money, by itself, doesn’t build a retirement nest egg; it is a combination of money multiplied by time. If you wait until your thirties…forties…fifties…until cash flow is easier, your next raise, you get a second job…any reason for procrastination, time is removed from the equation. Removing time eliminates the potential to compound your income with interest and forces you to rely just on your savings.
Gender comes into play
Since females tend to live longer, they need larger retirement savings. The odds of one spouse living past 90 are increasing so it’s prudent to plan for more than 30 years of retirement. Long life means a lowered withdrawal rate since your savings must last longer.
“They” aren’t taking care of it
Take responsibility for your own future. Just because you have a pension from work and expect to get bituach leumi, that may not be enough to support you in retirement, and chances are you’ll need personal savings to support your lifestyle.
Prioritize
Making a budget can help you prioritize how you spend your money now. Creating a financial plan can help you prioritize how you spend your money later. A financial plan is a snapshot of your short-and long-term income and expenses. It looks at your overall cash needs, and current and future assets, and determines how you can best utilize your assets in order to meet your needs.
By prioritizing how you will spend and save, you can help ensure that you will have funds when you need them. Many aspects of the economic world are beyond your control, but luckily, what may be the two most valuable assets, time and prioritizing, are within your control.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published October 28, 2012.