How to Plan for Retirement: What to Know Before You Start Saving

Video Transcript

Thinking about retirement but not sure where to begin? Whether you're decades away or counting down the years, having a clear retirement plan is one of the best financial moves you can make. Dreaming of traveling, starting a passion project, or simply enjoying time with family, the key is having enough saved to make it happen and waiting too long to plan can limit your options later. The time to start is today.

The earlier you begin saving, the better. Why? Because your money has more time to grow - thanks to compound returns. With each year, your savings can earn interest, then your interest earns interest, creating a snowball effect. Starting in your 20s - even with small amounts - can have a huge impact. But don’t worry if you’re starting later. The key is consistency and every contribution counts. There’s always time to improve your strategy.

When it comes to retirement accounts, one size doesn't fit all. If your employer offers a 401(k), take full advantage - especially if they offer matching contributions. That’s essentially free money. You can also open an IRA on your own. Traditional IRAs offer upfront tax deductions, while Roth IRAs let your money grow tax-free for retirement. Self-employed? Look into SEP or SIMPLE IRAs to raise your contribution limits. The best strategy is to max out what you can in both employer and individual plans.

Saving is important but investing is what helps your money grow. You should match your investments with your timeline. If retirement is decades away, you can afford to take more risk but if it’s closer, you may want more stability.

Timing matters. In general, age 59½ is when you can withdraw from retirement accounts without a penalty. At 62, you become eligible for Social Security - but your benefits increase the longer you wait, up to age 70. Full retirement age for most people is around 66 or 67. At 72 (or 73 depending on the year you were born), required minimum distributions (RMDs) begin for traditional IRAs and 401(k)s.

Build a plan by knowing what you’ll need. Estimate your future expenses in categories like housing, food, transportation, and healthcare. Housing is typically the largest cost, but downsizing or paying off your mortgage early can reduce that burden. Food and transportation often decline after retirement, but healthcare expenses usually rise. Use retirement calculators or worksheets to make realistic projections. The more accurate your estimates, the more confident you’ll feel about your savings goals.

Being ready to retire isn’t just about age - it’s about preparation. Ask yourself: Can your savings support your desired lifestyle? Do you understand how Social Security fits into your income plan? Have you accounted for healthcare and inflation? If you’re unsure, consider working with a financial professional. A second opinion can go a long way.

Planning for retirement isn’t about having all the answers - it’s about taking the next step. The earlier and more intentionally you plan, the more freedom you’ll have later. Whether you're just getting started or fine-tuning your strategy, every move you make today builds a more secure tomorrow. For additional resources, visit westernsouthern.com.

For many people, retirement is something they think about from time to time. When you are young, it may feel far away. As you get closer to the end of your career, preparing for retirement becomes more important.

No matter your age, understanding how to plan for retirement matters. Looking at your options and building a strategy early, even if retirement is years away, can help you build enough savings to support your lifestyle later on.

Set Retirement Goals

Saving for retirement often takes decades. It can be hard to know if you are on track. That is why setting clear goals and checking your progress over time can help you stay focused.

For example, you may choose to set savings targets based on your income before retirement. A common guideline suggests saving an amount equal to your annual salary by age 30 and three times your salary by age 40. It also suggests saving six times your salary by age 50 and eight times your income by age 60. To work toward these goals, you might aim to save about 15% of your income starting in your 20s.¹

These general guidelines may work for some people, but they do not fit every situation. If you plan to retire early or travel often, you may need to save more. If you plan to move to a lower-cost area or have other income sources, you may need less.

The key is to set goals that match your situation and review them regularly to track your progress.

Start Preparing for Retirement Early

Reaching your retirement goals becomes easier when you start saving at a young age. You can spread your contributions over a longer period, which can ease the strain on your budget as you get closer to your later working years. If you are not ready to fully retire soon, you may be able to take a mini-retirement.

When you save early, you may also benefit from compound returns. Any capital gains, interest, or dividends earned in an individual retirement account (IRA) or 401(k) can help grow your balance over time. This creates a snowball effect. Time can play a key role as you build your retirement savings.

Find the Retirement Strategy that Seems Right for You

What are some ways to grow your account balance and better manage your assets? In many cases, small changes to your money habits can improve how prepared you feel.

This list of retirement strategies includes proven approaches that can help you stay on track. Keep reading to learn more about budgeting, increasing tax-advantaged contributions, and creating an income plan for retirement.

Understand Your Retirement Plan Options

One way to get more from your contributions is to choose an investment option that may reduce the impact of taxes. Different retirement plans have advantages and drawbacks that are important to understand as you save for the future.

If you are new to retirement investing or recently started your own business, learning about these options can help you make more informed decisionss.

Employer-Sponsored Retirement Plans

If your employer offers a 401(k) or similar retirement plan, contributing to these accounts can provide added benefits. For example, many employers provide offer matching contributions, which can help grow your balance faster. In many cases, you can also make pretax contributions to traditional plans, up to certain limits.

IRAs

IRAs offer their own advantages, including access to a wider range of investment options than many workplace plans. These accounts have separate contribution limits, so using both an IRA and a workplace plan can help increase your total tax-advantaged savings.

Retirement Plans for Small Business Owners

The contribution limit for most IRAs is lower than that of employer-sponsored plans. However, small business owners may be eligible to set up a Savings Incentive Match Plan for Employees (SIMPLE) IRA or a Simplified Employee Pension (SEP) IRA, which allow for higher contribution limits. These two options have key differences, so it is helpful to review how each one fits your situation.

Select Your Retirement Investments

The number of investment choices available can feel overwhelming. Depending on your retirement plan, you may also need to decide whether a traditional or Roth account offers more tax advantages.

Having a basic understanding of investment types and account options can make these decisions easier. Use a simple guide as a starting point to build a more informed investment approach.

Know Important Retirement Milestones

Do you know when you can start receiving Social Security benefits or withdraw retirement funds without a penalty? Retirement planning involves various age-related milestones that are important to know. The more you know about these key points, the easier it becomes to build a strategy that fits your goals.

Estimate Your Retirement Expenses

How do you know whether you will have enough money for your planned retirement? To answer that question, you may want to estimate what your costs could be when you leave your full-time job.

Whether you use a worksheet or an online tool such as our Retirement Cost of Living Calculator , there is no substitute for listing your expenses. You may want to include these categories.

Housing

Housing is the largest single expense for those over age 65, according to the Bureau of Labor Statistics.² However, you may be able to reduce your housing costs by downsizing or renting out part of your home. If you own your home, you might also consider paying down your mortgage before retirement to make your future budget easier to manage.

Food

A typical older adult spends about $10,169 each year, according to government data.² Your household may spend more or less depending on where you shop and how often you eat out. To estimate your retirement food budget, review what you currently spend and adjust based on how your lifestyle may change.

Transportation

For many retirees, transportation costs may decrease since there is no daily commute. However, that may not be the case if you plan to travel often or visit family and friends, especially if it involves flying.

Health Care

Medical expenses are one of the largest costs for older adults. This makes it important to estimate your health care expenses. Factors to consider include:

• Your current health status
• Your age at retirement
• Whether you will be eligible for Medicare
• The type of Medicare plan you choose

Are You Ready to Retire?

Retirement can begin when your finances allow you to live comfortably. This may give you more time to do what you enjoy, whether that means traveling or spending time at home. To make that possible, you need to make sure your savings can support your lifestyle.

For example, do you know what your expenses may be? Do you know how much you might receive from Social Security? These are important questions to consider as you plan your next step.

Retirement Terms to Know

Retirement topics can sometimes feel confusing due to unfamiliar terms. However, preparing for life after full-time work does not have to be complicated.

A glossary explain common and often misunderstood retirement terms so you can better understand your options. The more familiar you are with these concepts, the easier it becomes to plan ahead.

Additional Retirement Planning Resources

Retirement topics do not have to be hard to understand. That is why we offer simple resources to guide you.

From a checklist to help you stay organized to a planning guide for women, these tools can help you feel more prepared for the next stage of life:

• Retirement Checklist
• Retirement Myths
• Retirement Planning for Women

Staying Focused on Your Golden Years

Between work, family, and other responsibilities, life can get busy. Even so, it is important to take time to think about your future needs.

Focusing on your retirement strategy now, even if retirement is years away, can help you build enough savings to live comfortably. If you want guidance, consider speaking with a financial professional who can help you better understand your retirement plan options and develop stronger saving habits.

Sources

1. Here’s how much money you should have saved at every age. https://www.cnbc.com/select/savings-by-age/.
2. Consumer Expenditures--2024. https://www.bls.gov/news.release/cesan.nr0.htm.
3. Starting Your Retirement Benefits Early. https://www.ssa.gov/benefits/retirement/planner/agereduction.html.
4. What is the Social Security break-even age? https://www.aarp.org/social-security/faq/break-even-age/.
5. 2025 Milliman Retiree Health Cost Index. https://www.milliman.com/en/insight/retiree-health-cost-index-2025.