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How To Start Planning For Retirement

Wondering whether now is the right time to start planning for retirement? The answer is yes. It doesn’t matter who you are, how much money you make, or where you are in your career. It’s never too early to start thinking about your future. You may be feeling young and energetic today. But the number of days in our lives that can be spent working are limited. That’s a good thing. There are so many other excellent ways to spend your time. But if you’re not sure how you’ll make ends meet once your working days are behind you, retirement can be a scary thought.

Start planning today and that thought may actually start to seem pretty exciting to you. If you take the right steps now to prepare for retirement, you have a much better chance of leading the life you envision once you close the book on your career. 

If you’re feeling super ambitious, you might be a candidate for early retirement. More and more Americans are considering the possibility of preparing to leave the workforce early in hopes of enjoying a longer, richer and fuller retirement. If this is something you might be interested in, check out our Ten Tips for Early Retirement

If you have your sights set on a more traditional retirement age, check out these tips and begin your retirement planning today. 

1. Start Saving Now!

No matter what your age, or where you are in your career, now is the right time to begin saving. While your savings goals will likely evolve as you grow, it’s perfectly reasonable to begin saving in small and regular increments.

The Department of Labor offers some tips for those who are just getting started. Even those with a modest income can begin saving now. Just do it in baby steps. According to the DOL, “Start small if you have to and try to increase the amount you save each month. The sooner you start saving, the more time your money has to grow (see the chart below). Make saving for retirement a priority. Devise a plan, stick to it, and set goals. Remember, it’s never too early or too late to start saving.”

You can begin with a traditional savings account, but you should also bear in mind that the interest yielded from a savings account is comparatively low. As you read on, you’ll find more details on employer-sponsored retirement savings accounts like the 401(k) and independent savings accounts like the IRA. But if you are at the beginning of your savings journey, the most important thing is to just get yourself on a saving schedule—for instance, putting aside $50 from every paycheck in a separate savings account. This fund may ultimately become the initial deposit when you do set up an interest-bearing account.

2. Be Realistic

You need to have a clear sense of what it means to retire. Simply stated, you will be giving up your working income but most of us also hope to keep a high standard of living in our later years. So what does that mean? According to the Department of Labor, “Experts estimate that you will need 70 to 90 percent of your preretirement income to maintain your standard of living when you stop working.”nBe honest with yourself about where you are on your savings journey, what you’ll need to live on upon retirement, and how you can accumulate this sum through your various savings and investment strategies. 

3. Identify Your Retirement Goals

In addition to being realistic with where you are in your current retirement preparation journey, you must clearly identify what you hope to have and do in your retirement. Will you own a full-sized home or do you plan to downsize to a more modest apartment? Do you plan to travel extensively or will you spend this time with family? What kind of lifestyle do you expect to lead? 

Answer these questions first. Once you’ve done that, it’s time to consider exactly how you’ll finance these ambitions. This is a great opportunity to speak with a financial advisor. Don’t be afraid to reach for the sky, but make sure that you fully understand the cost of your retirement dreams. A financial planner or advisor can help give you a clearer sense of these costs, as well as a sense of your progress toward affording your desired lifestyle. 

4. Determine the Net Worth of Your Assets

You can also take a few steps on your own to determine your progress toward these goals. In order to do so, U.S. News & World Report advises determining your full net worth. This is based on the value of everything you own, including your home, cash, vehicles, investments, and assets, minus everything you owe including your mortgage, student loans, small business loans, and revolving credit accounts. Naturally, the goal is to grow your net worth. Making this calculation at the start of your retirement planning journey can help you set and reach certain personal benchmarks. 

5. Make Contributions to Your Employer Retirement Plan

As noted above, at some point, you will want to begin saving directly toward retirement through an account that offers higher interest than a savings account as well as inbuilt tax benefits. Fortunately, many employers offer a 401(k) plan, where you can begin automatically diverting funds from each paycheck. These funds are sheltered from taxation and grow with a far higher interest rate than do traditional savings. Moreover, many employers offer contribution matching programs. According to U.S. News & World Report, “Certain companies offer to match a portion of the funds you contribute to a 401(k) plan each year. Ask if a match is available, and then make sure your contribution rate is enough to capture the free funds.”

If your employer does offer a contribution matching program, it’s important to take advantage of this opportunity. Pending your monthly expenses, income and immediate financial outlook, the more you can contribute to your account the better. Any time you are in a financial position to do so, it is advisable to max out your contribution to any 401(k) where an employer offers a matching sum. By doing so, you are literally doubling every dollar you invest in your future. 

6. Find Out About Auto-Escalation Features

Speaking of maxing out your 401(k) matching contributions, there may be a way to do this at a strategic and incremental pace. According to U.S. News & World Report, “Some retirement plans offer an auto-escalate option that will boost the amount you save for retirement over time.”

For instance, says USNWR, you can preset your contributions to your 401(k) to increase by 1% every single year. This modest increase may not make a huge impact on your monthly income, but it can provide an automatic imperative to improve your progress toward your long-term savings goals.

7. Monitor Your Social Security Outlook

If you are a working individual with a taxable income, you’ve been paying into the social security fund your entire professional life. You’ll finally get a chance to cash in on that contribution when you retire. But how much will your social security actually be worth? Get a better sense of this now so you can anticipate exactly how your social security income will figure into your overall financial outlook upon retirement. The best way to do this is to create an account with the Social Security Administration. This will give you a firsthand look at the type of social security disbursement you can anticipate once you’ve reached retirement age. 

8. Make Contributions to an Individual Retirement Account

In addition to the savings account provided through your employer, you will want to open your own high-yield, tax-sheltered retirement account. This is a far more profitable place to accumulate retirement funds than is a traditional savings account.

Kiplinger spotlights the value of an Individual Retirement Account (IRA) as part of your savings outlook. According to Kiplinger, “The traditional IRA is one of the best options in the retirement-savings toolbox. You can open a traditional IRA at a bank or a brokerage, and the universe of investments is wide open to you. But with that freedom comes responsibility. Traditional IRAs have a lot of rules—break one and you could face a penalty. Follow those rules, however, and you can end up with a sizable chunk of change down the road.”

Most important among those rules is to avoid withdrawing any sum from an independent retirement account before retirement age. This will result in hefty tax penalties that will ultimately evaporate the initial benefits of your retirement account.

9. Learn the Basics of Mutual Investment

Provided that you are both debt free and already have structured retirement savings accounts through your employer and through your own independent savings plan, you should also consider investing a regular sum on the stock market. But for the purposes of retirement, this doesn’t just mean gambling on interesting investment opportunities. Your goal is to invest a regular sum in low-risk, medium-yield mutual funds. Barring an unforeseen economic calamity at an inopportune time, a mutual fund investment–such as the Vanguard Total Stock Market Index Fund or the Fidelity 500 index Fund–will more than likely yield a profit of 8-10% over the lifetime of your investment, as opposed to the 6-8% yield typical of an IRA.

10. Eliminate Debts

We mention this step last because for many Americans, managing debt is a long process that can begin with the accumulation of student loan debts and roll directly into car and home ownership. Part of your retirement planning process should be an aggressive drive to eliminate as many of your debts as possible. From credit cards and installment plans to auto leases and home mortgages, your expenses may be part of your working lifestyle. But if you carry them into retirement, they couldl stand in the way of your savings goals and lifestyle expectations. Get to work eliminating your debts now so they don’t follow you into what should be your golden years. 


Obviously, it’s pretty difficult to begin saving for your retirement if you’re still swimming in debt. So how can you take steps to cut down your debts and better prepare for the future? Get started with a look at our tips on How to Pay Off Credit Card Debt.