It is never too early, or too late, to make decisions when it comes to your retirement planning. Whether you are just starting your career or retirement is just around the corner, do not let the financial and emotional side of planning overwhelm you. There are calculated steps you can take at every age and life stage that will help you reach retirement comfortably and enjoy your post-workforce years without undue hardship.
Take a look at this guide for retirement planning based on your age and how soon you plan to stop working. Remember that this is general advice and your retirement plan will be unique.
40 Years From Retirement
Most Americans will work about 40 years of their adult lives before retiring. It can be hard to comprehend what your life is going to look like several decades into the future, but you will be grateful later for the planning you did in advance.
The main way to plan for retirement at the beginning of a career is to set up a retirement fund and dedicate a small amount to it every month. To figure out the amount you should be contributing, check out a retirement plan calculator online that will take your age, income, and projected retirement savings into account. If your employer offers a 401(k) program or something similar consider joining in unless you plan to start your retirement account separately. However, if your employer offers 401(k) matching, it’s strongly suggested that you take advantage of this benefit. Find out what your employer’s rules are for vested money in the account so that you are sure to take every penny you earned and were given if you switch to a different job down the road.
The bottom line is this: you’re young, but that means that you have even more time to build up the savings you’ll need in retirement. A young person who puts $4,000 per year into retirement beginning at the age of 22 will have $1 million by the age of 62, based on 8 percent average annual returns. Even though it’s hard to put away extra cash for something that’s so far away, remember that nobody else is going to save for your retirement for you.
20 Years From Retirement
If you are right in the middle of your career and have yet to start planning for retirement, you will need to play a little bit of catch-up. Likely, you are more financially secure than you were at the beginning of your career, so it is a great time to start seriously saving retirement money.
The median net worth of workers ages 40 to 49 is $133,100, with the top 25 percent worth $371,000. By comparison, the median net worth of workers in their 20s is just $6,400. You may feel like your paychecks are gobbled up by house payments, car loans, and taking care of children, but prioritize finding a way to put at least 15 percent of your income in retirement accounts.
If you have not actually calculated what you’ll need in your retirement years or figured out what age you want to retire, now is the time. It may still seem far off in the distance, but understanding your financial constraints now will make a difference in how much you are able to save. Even if you think there is no way to save enough, meet with a financial planner to find ways to make it happen. A little is way better than nothing.
10 Years From Retirement
When it comes to what you will need to live out your work-free years in financial comfort, most experts cite 12 times your salary at the age of 65. If you are around 55 or in your 60s but planning to retire a little after that 65 mark, it is time to take a long look at your savings and determine how you can put more away.
Check out your savings. Are you at five times your income? Bump up the savings to 33 percent—putting $5,500 in your traditional 401(k) plan and the rest in IRAs or Roth IRAs. If you are married, you will want to talk with your spouse about the timing of retirements. Research shows that one in five couples retire in the same year as each other but keeping at least one on the payroll a little longer can mean a much happier and more comfortable retirement for both. Sit down and take a long look at where you stand financially and where you want to end up. Then adjust your savings to make it happen.
1 Year From Retirement
At this point, you are getting so close to retirement that you start to feel giddy—and maybe a little bit nervous too. The best way to face that anxiety is to know exactly where you stand financially.
Meet with your planner. If you have money in stocks, adjust it to be no more than 40 to 50 percent of your retirement cash (now is not the time to take risks, it is the time to coast on what you already have). Do a trial spending run based on your anticipated budget for the retirement years and look for ways to pull back on spending. What can you pay off? If you started late with retirement savings or are worried that you will not have enough to last through your golden years, ask your financial planner or a representative from The ARAMCO Group about the possibility of a reverse mortgage to tap into the equity of your home and put your mind at ease. Tie up any loose ends or financial burdens weighing on your mind, then decide if you are truly ready at the end of the year or if you can make it through a few more.
Like all phases of life, retirement takes some planning to truly be enjoyed. No matter where you are in the planning process, there is always time to make a better future for yourself. Use the income and resources that you already have smartly and you can live comfortably in your retirement years.