Planning for retirement can feel like an overwhelming task. It requires years of work, a basic understanding of finances and investing, and the discipline to see your plan through. But don’t worry — every good plan starts with simple steps. And your retirement plan is no different. If you’re ready to get moving on your retirement goals, check out these simple tips to help you save for retirement.
How to Prepare For Retirement
Preparing for retirement involves careful savings, thoughtful goals, potential changes to your current lifestyle, and the dedication to continue down this path for decades. It means sacrificing now to gain more later in life. But just because retirement seems overwhelming doesn’t mean you should put off planning for it. Here are some ways to make sure you’ll be ready when the time comes.
- Make Your Retirement Plans: Whatever your future goals may be, write them down and be specific. Do you want to live a quiet life away from the city? Or do you want to travel and go to the beach? The more descriptive the better. If your retirement goals are more luxurious than your current living standards, it’s a good indication that you’ll need to do a little extra planning to get prepared. You should begin by setting realistic retirement goals. Start with basic goals, like continuing any payments for cars, mortgages, and living expenses. Then, move on to planning for other, more fun expenses during retirement.
- Calculate How Much Money You Will Need: You might not know exactly how much money you’ll need in the future, but a great place to start is to understand how much money you’re spending right now. Write down all your current monthly and yearly expenses. Then, determine whether these costs will likely stay the same, go up, go down, or go away by the time you retire. Be sure to include things like a new location or communities you may move into, traveling for fun and to visit family, as well as other big expenses. This exercise can give you a rough idea of how much money you’ll need on a monthly and yearly basis in retirement.
- Calculate How Much Money You Will Need to Save: Now that you have an idea of how much money you’ll need to retire, calculate how much money you should save to reach your goal. You can use an online retirement calculator to help you figure out how much you’ll need. Or, you can do the math yourself. Decide when you want to retire — whether that will be 10, 20, or 30-plus years from now — and calculate how much money you’ll need to save every year until you retire to hit your goal. Again, these numbers are rough and will change, depending on your investments, your interest rates, any new goals you decide on later for retirement, and other factors, but it can give you a good savings goal to get you started and on the right track.
- Explore Savings Options: If you work for an employer that’s willing to match your retirement contributions (often 401(k) contributions), you should try to contribute as much as you can every month to take full advantage of that free retirement money. If not, you can look into other retirement account options, including Individual Retirement Arrangements (IRAs), Roth IRAs, and more. Traditional IRAs allow you to save for retirement without having to pay taxes until you make withdrawals in retirement. Roth IRA contributions are not tax-deductible, but you won’t have to pay taxes on withdrawals after you reach a certain age. Both options can help you save money and earn interest, which gets added to your savings.
- Understand the Time Value of Money: Your money is worth more in the future than it’s worth today, as long as you invest it right. The longer you save, the more your money will compound, and the faster it will grow. Your money’s earned interest gets reinvested and earns even more interest (hence the name compounding), which helps your savings grow over time. In other words, it makes all the sense in the world to make your money work for you now so you don’t have to work so hard in retirement.
- Weigh Investment Risk: When you contribute to a retirement account, your money gets invested in either stocks, bonds, mutual funds, or other investments. These investment types range from potentially risky (with a potentially high reward) to relatively safe (with a relatively expected reward). Most experts advise taking on more risk when you’re younger and reducing your investment risk the closer you get to retirement. Each investment carries its own individual risk, but in general, stocks are riskier (but have a potentially high reward), while bonds and mutual funds are generally considered safer investments.
- Understand How to Make Your Goals a Reality: As a rule of thumb, most people will need about 70% of their annual pre-retirement income to live comfortably. But if your definition of retirement involves expenses beyond those you have now — like traveling — you’ll likely need much more. Take stock of your current assets and when you want to retire, then calculate how much you’ll need to put away every month. Most financial experts say to put between 8% and 12% of your salary toward retirement, but the amount will depend on your goals and when you start saving.
When Should You Start Saving
You’re never too young or too old to start preparing for retirement. The best time to save for retirement is now. Start today by looking into savings plan options. If your employer doesn’t sponsor a 401(k) plan, speak with a financial adviser at your bank about opening a certificate of deposit (CD) or individual retirement account (IRA).
How Can You Make Your Future Goals A Reality?
Follow the steps above, and you can slowly but surely work your way toward your ideal retirement. Plan, budget, reevaluate, and repeat. In between all of this don’t forget to look into life insurance, health insurance, and other important financial obligations. Ask around and learn more on how to prepare for retirement — more knowledge can only do you good.
Are You Ready for Retirement?
Retirement planning may not be fun, but it will be worth the reward in the end. It is never too late to start saving up for retirement. Everyone’s path looks different, and that is okay! Maybe you need to work longer to ensure the retirement life you want or choose to work part-time as you adjust to a new stage of life. Only you can know if and when you’re ready.
Your retirement plan might just be the biggest plan you ever make. But if you start simply — learn the basics and start investing your money as early as possible—you can reach your retirement goals one simple step at a time.