Table of Contents
- What Is Retirement Planning?
- Why Is Retirement Planning Important?
- When Should I Start Planning for Retirement?
- How to Plan for Retirement in Your 20s
- How to Plan for Retirement in Your 30s
- How to Plan for Retirement in Your 40s
- How to Plan for Retirement in Your 50s
- How to Plan for Retirement in Your 60s
- Retirement Planning FAQs
- What's the Best Retirement Plan?
For many people, the topic of retirement is often somewhere in the back of their mind. When you're young, it's something you know you'll probably have to think about at some point. But for those who are older and at the end of their career, getting ready for retirement is a real priority.
Regardless of where you are in life, understanding how to plan for retirement is important. Focusing on your retirement strategy now, even if it's decades into the future, can help ensure that you have enough saved to live comfortably during your golden years.
Here's some information on why retirement planning is important, plus considerations for every stage of life.
What Is Retirement Planning?
Imagine, right now, you stopped working and planned on living the same lifestyle for the next 15-20 years. Where would you get the money to pay for your home, food and other bills, not to mention vacations or going out to eat?
This is where retirement planning comes into play. It helps you create a financial cushion that you can use to live off once you retire. This process helps you prepare your finances, savings and investments with life after work in mind.
Why Is Retirement Planning Important?
Retirement planning is one of those tricky things that you'll likely want to start well before you're ever going to need it.
Remember, for most people, once they retire, they typically don't expect much work-related income, if any. There needs to be something in place, in the form of savings and investments, to help make up for that loss.
While Social Security can provide some income, it might not be enough to cover your needs over the long-term. So, part of getting ready for retirement is finding ways to supplement that income to meet the needs you think you might have when you're older.
When Should I Start Planning for Retirement?
The simple answer is that it's never too early to start thinking about your retirement plans. While getting into specifics can sometimes be hard to do when you're young, it's still important to start building your savings, thinking about some of your retirement goals, and considering how much money you might need.
From there, as you get older and move through different financial life stages, you can adjust your strategy. After all, the needs of someone who is 26 versus someone who is 56 will be very different when it comes to retirement planning. Understand that no plan is set in stone; as you age and your goals and lifestyle change, you can make adjustments along the way.
How to Plan for Retirement in Your 20s
A lot of people in their 20s might not even consider planning for retirement. However, at this age, you have a big advantage that can help with your long-term retirement goals: time.
When you're young, you can take advantage of compound interest. With compound interest, you earn interest on interest, in addition to the contributions you make, meaning your savings and investments have the potential to grow over time.
For most people in their 20s, it's generally recommended to start putting aside some savings for retirement. If you have an employer-sponsored 401(k), you may want to start taking advantage of it. Even contributing a small amount from every paycheck can make a difference.
If you 40, you might consider opening an individual retirement account (IRA), which you can contribute to on your own.
How to Plan for Retirement in Your 30s
Those in their 30s still have time on their side when it comes to getting ready for retirement.
If you do have the option to contribute to a 401(k) plan at work, now may be a good time to start. If you've already been contributing, you can look at your budget to see if you can increase your contributions from each paycheck.
Entering your 30s can be a good time to revisit your finances and start building your savings. Start by taking a look at your income, expenses and savings, and then determine where you can cut expenses or increase savings — especially when your salary increases.
How to Plan for Retirement in Your 40s
While many people still have a few decades until retirement as they enter their 40s, it's not quite as far away anymore. This is when you may want to take a closer look at your saving strategy.
Beyond continuing to increase your savings and investments when you can, you may want to look at your debt. If you have kids, you might be saving for them to go to college, which can be a significant expense that you'll need to account for in the coming years.
Large amounts of debt can play a negative role in your retirement and impact your finances. During this time, it's important to revisit your budget, take a deep dive into your debt, and determine a strategy to start tackling both.
How to Plan for Retirement in Your 50s
In your 50s, it's important to look at your retirement strategy much more often, including your budget. You may also want to ensure that you have a good idea of what you want your life after retirement to look like.
You'll likely still want to continue contributing to your savings and retirement accounts and looking at ways to further reduce your debts. At this stage, that might mean focusing on paying off your mortgage. Once paid off, you may be able to direct those monthly payments into your savings accounts.
You can also look at other areas that might make a real impact on your savings and investments. Once you hit 50, you could take advantage of catch-up contributions for 401(k)s and IRAs. You can potentially add thousands of additional dollars to these accounts each year until retirement.
Finally, your health is something to pay attention to as well. Typically, Medicare won't cover everything, so many Americans may spend a significant portion of their retirement funds on health and medical issues. To help fill this gap, you could open a health savings account (HSA) to start putting away funds to help cover these future expenses.
How to Plan for Retirement in Your 60s
Once you hit your 60s, retirement is right around the corner. All your hard work getting ready for retirement can hopefully begin to pay off soon.
Depending on your age, you can consider applying for Social Security benefits and Medicare. When it comes to your Social Security, you'll want to determine the right plan for your needs. While you can start claiming benefits when you're 62, you can also hold off until you are 70, which can increase your monthly benefit over the years.
You'll also likely want to continue to contribute to your retirement savings, including catch-up payments and your HSA. You might also want to revamp your budget to start preparing yourself for your retirement lifestyle, even if it's still a few years away.
You may also want to consider taxes. Depending on the type of retirement account you have, you might need to pay taxes as you begin withdrawals after retirement. You can work with a tax professional to determine what's best for your situation.
Once you're ready to make the leap and retire, you can revisit your plans and review the budget and goals you've set. That can help you make the most out of your retirement, especially in those early years.
Retirement Planning FAQs
A lot of people have questions on the best ways to plan for retirement. Here are some answers to a few of the most common questions.
What Is the Retirement Age?
You can start claiming retirement benefits as early as 62 years old. However, keep in mind that if you start your benefits before you've reached your full retirement age (FRA), your benefit will be reduced.
Your FRA is based on different age brackets. Currently, if you were born between 1943 and 1954, your FRA is 66 years old. If you were born between 1955 and 1959, your FRA is some time with your 66th year, depending on your birth date. Those born after 1960 have an FRA of 67.
By going through your plan, or working with a financial professional, you can review your savings, investments and work history. Then you can decide if you're ready to retire or if you want to put it off for a few more years to help maximize your savings.
How Much Do I Need to Retire?
A general rule of thumb is to have between approximately 8 and 10 times your salary in savings, depending on when you retire.
Of course, the exact amount of savings depends on each person and their goals and lifestyle. For example, someone who expects to need $3,000 a month throughout retirement will likely have a different retirement strategy than those who need $7,000 to keep up with their lifestyle.
To determine your need, it's helpful to figure out your monthly expenses, flexible expenses and discretionary expenses. That can help give you a baseline of the minimum amount you may need each year, for however long your retirement lasts.
How Do I Start Saving for Retirement?
Regardless of your age, there are a few considerations as you start saving:
- How much you think you'll need in retirement.
- Create a budget that includes retirement savings and investments.
- Contribute to 401(k)s and/or open an IRA and contribute.
- Take advantage of catch-up contributions after age 50.
- Make saving a priority and consider taking a portion of any additional income you get and putting it toward your retirement plan.
As you learn more about retirement and determine your goals, you can make adjustments to this basic strategy to better fit your needs.
What Are the Different Types of Retirement Plans?
When it comes to retirement plans, there are a few different types available to most people.
401(k) plans are employer-sponsored retirement accounts that you can contribute to from each paycheck. Some employers offer pension plans, which are funded by the employer rather than the employee.
IRAs are another type of retirement account; however, they are usually not managed by an employer. Anyone can open their own IRA, which helps if retirement plans aren't offered at your workplace.
What's the Best Retirement Plan?
The best retirement plan is the one that helps you set a realistic financial strategy for your retirement and helps you live comfortably during your golden years.
You can work with a financial professional who can help guide you through the retirement planning process and help you make the appropriate decisions for your particular needs. There is no one-size-fits-all when it comes to retirement, so it's important for you to come up with a plan that's tailored to what you need over the long-term.
Not ready to speak to a financial professional yet? No problem. Learn more about our Retirement Planning Services and let us know when you are ready.