How To Start Planning for Retirement

Whether you’re 25 or 55, the idea of retirement planning can feel overwhelming, especially if you haven’t started yet.

The good news is that creating a retirement plan isn’t as difficult as you may think. And while it’s best to start early, all’s not lost if you’re starting late.

From how to start your retirement planning to finding extra ways to save, we’ve compiled tips for retirement savings goals by your age group and steps to maintain your retirement plan as you set the stage for a comfortable future.

What is retirement planning?

Retirement planning is a two-part process: determining how much money you’ll need to retire, then creating an action plan to get there.

That’s where financial planning comes into play.

Financial planning is the process of getting a full picture of your financial state, income and expenses, then strategizing goals based on those variables.

This is important because when you retire largely depends on how much money you’ll need. A good rule of thumb is 80% of your preretirement income in order to maintain your current lifestyle.¹ So if you make $65,000 every year, expect to need $52,000 each year during retirement. Factor in any income you may get from a side hustle, part-time job or seasonal work after retirement.

Determining your retirement lifestyle also makes a big impact on how much money you’ll need. Consider where you want to live and if you’ll travel or pursue new hobbies. While you can start collecting Social Security retirement benefits at age 62, it may be best to wait in order to receive more each month.² Use this online calculator to see how much your benefits will be reduced if you start collecting early.

When should you start planning for retirement?

It’s best to start a retirement fund in your 20s, but you’re never too young—or too old—to save for retirement.

Here are a few suggestions for retirement savings goals by your age group:

In your 20s, explore retirement plan options like a pension or 401(k) plan and start saving early. Your investment can grow through compounding even if the contribution is small at first. It’s also wise to find a budgeting style that works for you.

Contribute to your retirement plan often in your 30s, especially if you have an employer match. Pay down credit card and other debts with these tips to pay down loans faster. Consider investing, but speak with a financial advisor or investment professional beforehand if you’re unfamiliar with it.

Max out contributions while you’re between 40 and 50. At that point, you can contribute up to $20,500 to a 401(k) plan and $6,000 to a Traditional and Roth IRA.³ Discuss future plans with your parents, keeping in mind that 1 in 5 middle-aged adults have provided some amount of financial support to a parent older than 65 years.⁵ Consider long-term care insurance, as someone turning 65 today has an almost 70% chance of needing long-term care services.⁴

Once you hit your 50s, take advantage of 401(k) Catch Up Contributions, which allow you to put an extra $6,500 into your 401(k) each year, there's also an extra $1,000 catchup for IRAs in excess of the standard limit. Pay off your mortgage, reduce costs and evaluate your life insurance to lower expenses. Try a retirement “practice run” by living one month on your planned income so you can adjust before the real deal rolls around.

5 Steps of Retirement Planning

Now that you’ve considered your future wants and needs, as well as your retirement goals, it’s time to start planning. Use these steps to build or maintain your plan for retirement:

1. Choose a target age and amount.
   The average retirement age in the United States is 65 for men and 63 for women⁶. Your target age could be different for a variety of reasons, such as income, family or life events, but it’s important to choose one. The next thing to consider is how much money you’ll need to have when you retire. Like your target age, this number has its own variety of circumstances, including long-term care and expected lifestyle. If you need help determining a dollar amount, review these suggested retirement savings targets and try using the U.S. Department of Labor Retirement Savings Worksheet.

2. Map out where your savings will go.
   If your employer offers a 401(k) plan, especially one that matches your contributions up to a certain percentage, this could be a great option. It can also be a simple way to save, as most companies will automatically deduct the amount you choose from your paycheck and deposit it into your retirement plan.
   
   Some employers don’t offer any plans. If yours does not, there are other options you can set up on your own. Individual Retirement Accounts (IRAs), such as Roth IRAs, are retirement accounts you can open yourself or with the help of a bank. For detailed information on over a dozen options, check out this list of retirement plans from the Internal Revenue System (IRS).

3. Find extra ways to fuel your savings.
   Beefing up your retirement fund is a great reason to save money and stick to a budget. Most plans use compound interest, which allows you to build interest on top of interest. This means the more money you put in now, the more interest can grow over time.
   
   To find extra money to put toward retirement, review your current budget and look for ways to save. If you don’t have one yet, follow these tips to create a budget. Once you have an idea of where you can cut back, decide to make it happen. If you need some suggestions, try these simple ways to save money every day.

4. Create an emergency fund.
   Although it isn’t always possible, building an emergency fund safeguards your retirement accounts. When unexpected expenses hit, you’ll have money already set aside to cover them so your retirement savings and accounts can stay untouched.

5. Set an annual date to review your plan.
   Before you set your retirement plan in motion, pick an annual date to check on its progress. It could be January 1, the day you started your plan or another date you’ll always remember. The important thing is you choose one day to sit down to review the past year and see if you notice new opportunities for growth.

If you’d like guidance in reviewing or updating your retirement accounts, consider hiring a financial advisor. They will most likely charge a fee, but if you find a path to saving more money for retirement, your profits could end up being a lot more than the cost. Here are some suggestions of what to look for in a financial advisor.

Plan now, relax later.

Retirement planning is different for everyone, especially if you’re self-employed or don’t have plans available through work. The important thing to remember is to simply start planning, then put your plan into action. The sooner you do it, the more money you’ll have when it’s finally your time to kick back and sail into a comfortable retirement.

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This article has been updated from a previous posting on June 1, 2021. Jessica Leshnoff contributed.

1. Frankel, Matthew. “How Much Do I Need to Retire?” Fool.com https://www.fool.com/retirement/how-much-do-i-need (accessed April 22, 2021).
2. Social Security Administration. “Retirement Benefits.” SSA.gov. https://www.ssa.gov/benefits/retirement/planner/agereduction.html (accessed April 20, 2021).
3. Internal Revenue Service. “401(k) contribution limit increases to $19,000 for 2019; IRA limit increases to $6,000.” IRS.gov. https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000 (accessed October 7, 2019).
4. LongTermCare.gov. “How much care will you need?” LongTermCare.gov. https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html (accessed October 11, 2019).
5. Crawley, Mary. “4 Smart Money Moves for Your 40s.” Fool.com. https://www.fool.com/retirement/2017/11/13/4-smart-money-moves-for-your-40s.aspx (accessed October 8, 2019).
6. Anspach, Dana. “Average Retirement Age in the United States.” TheBalance.com. https://www.thebalance.com/average-retirement-age-in-the-united-states-2388864 (accessed April 20, 2021).