What we'll cover:
Saving for retirement. We all know we should make it a priority and that the earlier we start the better. It’s not rocket science, and in fact, the basic principles (the above being two of them) are pretty straightforward.
The challenge is that saving for the future can feel so distant – life gets in the way, so saving takes a back seat. But no matter your age, life stage, or the many things you’re juggling, saving for your future should always be a top priority. And just because it’s important doesn’t mean it needs to be difficult. A lot of the fundamentals covered in this article are simple and more importantly, achievable.
With a little math and a lot of discipline, you can set yourself up for a comfortable future – one that eventually won’t feel so distant.
Here are some retirement savings strategies for different age groups broken down by things to do, things to know about and some bonus points if you’re up for the challenge.
A quick note: this is a fairly comprehensive list and there may be times where you feel like you’re behind or aren’t doing enough. That’s okay. The main thing is to do what you can given your circumstances. Another note: this is general guidance. When it comes to your money and investing, it’s always a good idea to do your own research and consult a financial advisor if you have one.
This is probably the hardest and most daunting part because there are so many unknowns. You don’t know how long you’ll live. You don’t necessarily know when you’ll retire – even if you have a target age, it may come sooner or later than you think. You don’t know what sort of healthcare costs you or your loved ones might incur. Your location and lifestyle will impact this number. And so on. Point is: you just don’t know, and not knowing is scary.
So what do you do? There are several retirement planning calculators out there that will try and factor in some of the variables (retirement location, lifestyle, wage inflation, etc.). There’s also a basic rule of thumb that you’ll need 80 – 100% of your pre-retirement income each year once you retire. In other words, once you retire, you’ll need to have access to 80-100% of what you made immediately prior to retiring.
Going with this rule, let’s say you retire at 65 with a $150,000 annual income. For this example, let’s use 90% as the percentage of your income you’ll need in retirement. Take that $150,000, multiply it by 0.90, and $135,000 is the annual income you’ll need in retirement. That’s well over $3 million if you live to 90.
So not only is calculating this number scary, but once you get to a number, that number makes your stomach churn. But keep reading, because you don’t want to just ignore the big, scary costs of retirement.
Do some research, crunch your own numbers and figure out a ballpark goal. Even a range is fine, but having some real, actual numbers is a critical first step. Whatever you do, don’t just wing it and hope that you’re saving enough.
Start by establishing good habits and making retirement a priority. How you manage your finances now will shape much of how you handle finances in your future, and you want to build off a solid foundation. Time is on your side, and the more you save early on, the more compound interest will work in your favor.
Maybe this section is for your kids (or grandkids), and if so, help them by reinforcing good habits.
Your retirement plan options. Understand the basic account types, including the benefits, tax implications and contribution limits for each. Here’s a quick rundown:
If your employer doesn’t offer a 401(k), consider an IRA. Here are the main types:
The fundamentals of investing. Make sure your portfolio has the right mix of aggressive (stocks) and conservative (bonds) investments. When you’re young, you probably want to be investing more aggressively (meaning your portfolio should be mostly stocks) because you’re likely far away from retirement. As you get older, you’ll probably start to gradually shift your portfolio to be more conservative.
By this point in your life, you’re likely earning more than you were in your 20s – and go you! It’s also the point in your life where your obligations – financial and otherwise – can start to expand very quickly.
It’s easy to spend a ton of money trying to maintain a certain lifestyle, but don’t let the allure of keeping up with the Joneses (or what you see on Instagram) tempt you from saving for your future. Make sure saving for retirement remains a top priority.
If you’re behind (or just getting started): First, don’t panic. Even if you start now, compound interest can still work in your favor, and can help you reach your retirement goals. Make sure you understand the fundamentals covered above and then set aside a greater percentage of your salary for saving.
Your responsibilities in your 20s and 30s probably seem like a cakewalk once you hit 40. For some in this age group, you might be in the oh-so-stressful position of having to take care of both your own children and your aging parents. And when you’re taking care of everyone else, it’s easy to neglect taking care of yourself – but try your best not to.
If you’ve built good habits and have your finances on auto-pilot, keep those habits in check and don’t touch a thing. If you haven’t, now might be the time to start so that you can set it and forget it. It’ll make it easier for you to save, and it’ll be one less thing for you to worry about.
If you’re behind (or just getting started): Know that you’re not alone. According to the Fed’s 2018 Report on the Economic Well-Being of U.S. Households, a quarter of non-retired adults indicate they have no retirement savings, and 44 percent say their savings is not on track. If you’re in the same boat, take a hard look at your expenses and figure out if there are places you can trim.
If cutting your budget only does so much, think about ways you could increase your earnings – ask for a raise, look for a higher paying job or consider another income stream (rental properties, side gigs, etc.).
Retirement probably doesn’t feel so distant now that you’re in the homestretch. And while you might still have a ton of priorities you’re juggling, keep focusing on your future. Your perspective on it will gradually start shifting from building your savings to accessing your savings. Of course your money should continue to work for you, but as your retirement age inches closer, you’ll need to figure out how to live off your nest egg.
If you’re behind (or just getting started): Take a deep breath. Your situation isn’t hopeless, but it’s probably a serious wake up call. Be realistic about your retirement goals and when you plan on retiring. It’s possible that you may need to work longer to meet those goals. The most important thing you need to do is start saving more.
Remember: no matter your age, start by calculating a *general estimate* of your retirement needs. Then save accordingly, evolving your strategy as you age.
Retirement can be nearly a third of your life, and you probably want to enjoy it. If you spend as much time financially preparing for retirement as you do dreaming about what you’ll do with it – be it traveling the world or playing 18 holes a day – you’ll head into your golden years with confidence and a (hopefully) healthy nest egg.
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