If you're like me, you just hit the big 4-0 this year and looked at your retirement plan and realized you didn't have one.
What happened? Why didn't I invest sooner? And when did forty creep up when I wasn't looking?
No, really, don't panic. The first thing you need to do is take a deep breath, breathe, and let the calm, logical part of you take over. In investing, knee-jerk responses can make you lose you more money than it can gain you money, so you need to have as close to humanly possible zen-like calm. If like me, you're forty or close to it, you still have at least twenty years before retirement. If you work in an office, you can add another five to seven years, depending on how close to forty you are.
Now, that you've taken a deep breath (or two), move to the next step and think about what you picture your retirement to be. You need this so that you have a long-term plan... which is exactly what this is for.
Where do you see yourself in twenty (or more) years?
This should bring you to how much money you want to live on per year, and from there, using an online retirement tool, you will know how much per month you need to set aside.
Before you run to your bank, though, there are a few other questions you need to ask yourself.
First, how averse to risk are you? Can you keep yourself from pulling out when you see your investments drop a little bit or does the thought of that give you hives? Not to worry if they do. Generally, markets even out and then increase. We refer to this as market volatility, and it's perfectly normal. If you can "ride out" the volatility through the long term, the money you invest will eventually grow.
Don’t Reject Diversifying Your Investments.
If you have never invested a cent in your life, it’s generally better to reasonably spread out the eggs. Some experienced investors will pick one investment and stick with it until it’s time to sell it, but they have been doing this for years. Diversifying is a way of managing your risk so that if that one stock drops and you weren’t quick enough to sell it, or your investment broker wasn’t, you only see a small blip rather than seeing all of your savings sink with it.
Don’t Borrow Money to Invest.
While some can make money by borrowing money to invest, there are a few reasons to not do this. First, taking out a loan in any shape or fashion results in interest, and if your stocks aren’t performing this means you’re making payments and paying interest on a loan instead of making money. Instead of paying interest to the bank or another lender, take the money you would be paying and invest instead.
The key thing to remember is that you’re only forty (or close to it). Take a breath. It’s not too late.