When you begin to research retirement planning, the number 80 percent pops up frequently. Nearly every website and retirement expert suggests that you need about 80 percent of your current income to maintain your standard of living in retirement. For many people, this figure is also very close to what they should be living on now to save enough for retirement. Whether you're close to retirement or just beginning to think about what happens when you stop working, follow these simple steps to live comfortably with less.
Track your cash flows. You’ll have a hard time spending less if you don’t know what you’re spending in the first place. Pick a method for recording your incoming and outgoing cash and make a habit of using it. Your tracking method doesn’t have to be fancy – just make sure the method you choose is something you’ll use consistently, whether it’s pen and paper or a smartphone app.
Make a budget. After you’ve tracked your cash flows for a month and before you transition into retirement, decide how much money you have to spend, and how you’d like to spend it. It’s very helpful to write down your goals – traveling, a retirement home on the beach or even just a worry-free retirement – so you remember why you’re being careful with your money.
Don’t bring the money home. If you’re still working, arrange to have your savings automatically deducted from your paycheck and deposited into your 401(k), IRA and bank savings accounts. If you’re retired, keep most of your money in your investments and savings accounts and set up monthly automated cash transfers into your main spending account. Make it as difficult as possible to spend your savings, so you think twice before going over your budget.
Analyze your purchases. Make sure you understand the difference between what you need to live and what you want to have to be comfortable. You can certainly have things you want, but consider any cost to your goals and make sure you make purchases that fit into your long term plans and truly enhance your quality of life.
Invest your savings. Your savings should be working on your behalf, both before and after retirement, even if it’s just earning interest in a savings account. Develop an investment plan – several websites offer good investment strategy tools for do-it-yourselfers, or you can schedule a session with a financial planner. Whatever your method, make sure you review it regularly, on at least an annual basis.
Nola Moore is a writer and editor based in Los Angeles, Calif. She has more than 20 years of experience working in and writing about finance and small business. She has a Bachelor of Science in retail merchandising. Her clients include The Motley Fool, Proctor and Gamble and NYSE Euronext.