The earlier you start planning for retirement, the more time you give yourself to plan for the future and make sure it’s properly funded. Even if you’re playing catch-up with your retirement savings, experts point out that individuals and couples can make a significant amount of progress just by committing to saving toward their retirement goals for 10 years.
The average federal retirement age is 61 years old, which has been steadily rising over the last decade. That may seem far off, but the best way to save for retirement is by starting right now and collecting all the financial knowledge you need to build a proper savings strategy for the years to come.
Keep reading to learn how to plan for retirement.
Questions About Retirement Income Planning
The sooner you begin planning for retirement, the better. You want to start building your nest egg as soon as possible so it can start to grow steadily. To help you better understand how to plan for retirement, we provide the answers to a few pressing questions:
How much do I really need to retire?
If you’re worried about your retirement savings or haven’t spent much time planning for the future, you’re not alone: As of 2022, nearly half of American households had nothing saved in their retirement accounts, according to the Survey of Consumer Finances. The mean annual income for American individuals aged 65 and older is approximately $75,000. The expected time in retirement averages around 20 years for U.S. adults (and continues to climb), bringing the total savings requirement to a whopping $1.5 million.
That may seem like a lot of money, but with the right financial planning—more specifically, the right retirement planning—you can start saving now and have enough to retire when the time comes.
Why is it important to save for retirement?
There are various interest-bearing financial tools that can help you build wealth. However, keep in mind that even with compound interest, the process is typically slow-moving. You can look for accounts that pay higher interest rates, but a savings account alone won’t generate enough money for your retirement needs.
Later in life, when you’re no longer earning a salary, you have to think about possible medical expenses, the rising cost of housing, and any long-term care you may need in the future. Keep these retirement expenses in mind to maintain a comfortable standard of living.
How long will my money last in retirement?
One straightforward approach to estimating how long your money will last in retirement is to weigh your total savings, plus investment returns over time, against your annual expenses. Ultimately, though, the total amount you’ll need depends on the lifestyle you plan to maintain. To experiment with various budgeting plans, try out an online retirement calculator or speak with a financial expert at your local community bank.
How to Plan for Retirement Regardless of Your Income
Regardless of your income or the status of your retirement savings, below are five things everyone should do as part of planning for retirement:
1. Estimate your projected Social Security income.
Social Security income is calculated according to multiple factors, including:
- Your average income over your 35 highest-earning years
- The age at which you start claiming benefits
- Whether spouses claim this income together or separately based on their respective incomes
This estimated monthly income may lose accuracy the further away you are from retirement, but it’s certainly 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. 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. Speaking with a financial advisor can help to simplify this process, especially for those who are unsure where to begin.
4. Identify 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, traditional individual retirement accounts (IRAs), Roth IRAs, or other investment funds. Each of these investment options offers different benefits and challenges. 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.
How to Plan for Retirement Starting Now
The sooner you start including retirement savings as part of your financial planning, the better off you will be when the time comes to retire. You should start now—waiting because you assume you’ll be making more money or your lifestyle will change means working to make up for lost time. If you prioritize retirement savings, you can get a jump start on the peace of mind that comes with financial security.
Here are some tips for helping you start reaching your retirement savings target:
- Maximize your 401(k): The advantage of contributing to a 401(k) is that you are contributing tax-deferred income.
- Supplement with an IRA: There are several types of IRAs, including traditional, Roth, self-employment pension plans, and other types of retirement accounts.
- Use low-risk savings accounts: Consider savings accounts, money market accounts, CDs, and other savings vehicles, which can be transferred into an IRA later or used for other retirement investments.
- Consider alternative investments: If your retirement is still some time off in the future, weigh your options for investing in stocks, bonds, mutual funds, or real estate.
Find the Freedom to Retire with FSCB
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 track. 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.
When you’re thinking about your plans for the future, make sure you’re approaching them in a way that supports those goals. Download our free e-book, Financial Planning for Significant Life Events, and don’t hesitate to speak with a First State Community Bank financial advisor for additional investment insights.