Retirement planning is a crucial step in securing your financial future. The earlier you start planning, the better your chances of achieving a comfortable retirement.
In America, however, fewer people are properly planning for retirement. A 2022 survey found that 55% of respondents were not adequately prepared for their later years. While that survey focused on younger generations, this trend doesn’t improve with older generations: half of women (and 47% of men) between the ages of 55-66 have no personal retirement savings.
Another study from last year found that only 17% of American adults place retirement savings as their top financial priority, with 60% of respondents believing they’ll be unable to retire at 65. That’s especially challenging when the amount of money required for retirement jumped 20% between 2021 and 2022—to $1.25 million.
That number simply isn’t feasible for everyone. Yet storing away money (ideally with a high APY) is still possible.
Keep reading to find out how to start a retirement savings plan.
How to plan for retirement
- Determine your retirement goals. Determining what you want to achieve in terms of retirement savings is the first step in achieving your goal. Planning is impossible without a roadmap. Consider factors such as your desired lifestyle, healthcare needs, housing expenses, food budget, and travel plans. This will give you a clear idea of how much money you will need to save. Perhaps it’s the estimated $1.25 million cited above, depending on your lifestyle.
- Create a budget. Once you have a clear idea of your retirement goals, creating a budget is the logical next step. This will help you understand how much money you need to save each month to reach your goals. Make sure to include all of your expenses, including housing, food, transportation, and health care. You might also want to set aside an emergency fund as well, which could help if you ever lose your current job or switch careers, and your ability to save is altered.
- Start saving early. The earlier you start saving for retirement, the more time your money has to grow. Take advantage of compound interest by investing in a high-yield savings account or a long-term investment such as a stock or bond. As Morgan Housel writes in The Psychology of Money, wealth is most often created over long periods of time. The longer you’re able to let your money sit in a high-yield account, the better for your golden years.
- Diversify your investments. Diversifying your investments is crucial for managing risk and maximizing your potential for growth. Instead of putting all of your money into one stock or investment, spread your money across a variety of different vehicles in order to maximize your wealth.
- Take advantage of employer retirement plans. As mentioned above, wealth occurs over time for most people. But that requires storing money away as early as possible. Many employers offer retirement plans such as 401(k)s and pensions. Take advantage of these plans by contributing as much as you can. Your employer may also offer matching contributions, which can be a significant boost to your retirement savings. Financial advisors tend to recommend taking full advantage of your employer’s matching rate.
- Consider working longer. There is no one true retirement age for everyone. If you’re able to work longer than the usual 65 years in America, you can save more money, earn more interest on the money you’re making, and delay taking Social Security benefits. Working longer can also increase your Social Security benefits, which will further benefit you when you finally decide to retire.
- Seek professional advice. Retirement planning can be complex and requires the consideration of numerous factors. That’s why seeking the help of a financial advisor can be highly beneficial. A financial advisor can help you create a customized plan that takes into account your unique circumstances and goals. They can also point out areas of savings and investments you might not have considered.
Let’s face it: humans are short-term planners. It’s one of our primary cognitive biases that can hurt us in the long run. Yet planning for retirement is a crucial step in securing your financial future. It’s never too early to start planning.
By determining your goals, creating a budget, starting to save early, diversifying your investments, taking advantage of employer retirement plans, considering working longer, and seeking professional advice, you can take control of your financial future and build the wealth you need to secure a comfortable retirement.