If you’re worried about your retirement savings or haven’t spent much time planning for the future, you’re not alone: At least 45 percent of Americans are worried they won’t have enough money saved to get them through their golden years.
The earlier you start retirement planning, the more time you will give yourself to plan for the future and make sure it’s properly funded. And even if you’re playing catch-up on your retirement savings, experts point out that individuals and couples can make a significant amount of progress just by committing to 10 years of saving toward their retirement goals.
Regardless of your income or the status of your retirement savings, here are five things everyone should do as part of planning for retirement.
1. Estimate your projected Social Security income.
Social Security income is calculated based on multiple factors, including your average income over your 35 highest-earning years, the age at which you start claiming benefits, and whether spouses claim this income together or separately based on their respective incomes.
The Social Security Administration offers a simple calculator to help you estimate income based on various scenarios.
This estimated monthly income may be less accurate the farther away you are from retirement, but it is still a good place to start. Understanding your Social Security income is an important first step in figuring out how you need to supplement that income with your own savings.
2. Set your personal retirement goals.
Retirement goal-setting includes figuring out how much monthly income you will need to fund your ideal retirement. A financial planner can offer the most accurate calculation of your anticipated retirement income needs, especially when accounting for specific retirement goals. But there are also various online tools and calculators to help you estimate these income needs and your current progress toward those goals.
Retirement goals should account for your expected monthly spending, major purchases, retirement age, and other potential expenses you may incur.
3. Create a retirement savings plan that can support those goals.
Once you understand your projected income needs and your estimated Social Security income, you can review your current retirement savings to determine how close you are to funding those goals.
In some cases, your current savings and investment pace may be enough to meet or exceed those needs. In other cases, you might discover a gap between the amount of income you need and your ability to reach those goals at your current pace. If this shortfall is identified, you will want to prioritize additional retirement contributions and investments to catch up.
4. Choose the retirement accounts you want to fund.
In addition to Social Security and pensions, retirement income may come from an employer-sponsored 401(k) plan, Roth IRAs, traditional IRAs, or other investment funds.
Each of these investment options offer different benefits and challenges. A 401(k) may offer employer matching that increases your total contributions to your account. A Roth IRA offers tax-free withdrawals in exchange for paying tax on contributions, while traditional IRAs are tax-deferred.
If you’re unsure how to use these investment options in combination with one another, consult with a financial advisor.
5. Track your progress over time.
Retirement planning is a process that plays out over years and decades. You should track the progression of your earnings over time to make sure you’re moving closer to reaching your retirement goals—and if you’re still falling short, consider additional changes to your retirement plan.
As you move closer to retirement, your overall financial picture will become more clear, and your progress toward your retirement goals will become easier to understand. By planning for retirement early and making progress toward those goals, you can move closer to enjoying the retirement of your dreams—and enter your golden years with a sense of financial security.
Discover more tips through our informative video, “6 Things to Do When You Retire.”