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Retirement Planning: Guide to How and When to Start



road to a sweet retirement

If you were planning an epic round-the-world trip, you’d spend lots of time and effort planning and saving for it. Retirement planning is similar. You don’t have to take all the steps outlined here at one time, but starting to plan your retirement will ease worries about what life might be like after you’ve earned your last paycheck.


What Is Retirement Planning?

Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. It involves identifying sources of income, estimating expenses, implementing a savings program and managing assets and risk. Retirement planning is an important part of an overall financial plan as it aims to maintain the same or an improved standard of living in retirement.


A comprehensive retirement plan considers factors such as desired retirement age, life expectancy, lifestyle goals, health care needs, inflation, tax implications and investment strategies. It takes into account various income sources like Social Security benefits, employer-sponsored retirement plans, personal savings and investments and other sources of income. The plan should strike a balance between saving enough for retirement and enjoying your current income.


Proper retirement planning helps individuals prepare for the transition from working years to retirement. It allows for a more secure and comfortable retirement by ensuring sufficient income sources and addressing potential risks. Consulting financial advisors, setting realistic goals, starting to save early and periodically reviewing the plan are key steps in effective retirement planning. A well-designed retirement plan can provide peace of mind and financial security during the golden years.


5 Steps to Retirement Planning

Here are some steps for how and when to start retirement planning.



The first step in creating a retirement plan is to envision what you want your retirement to look like. Do you want to retire to a different state, travel often, spend lots on grandkids, work part-time or move to a retirement community? Once you figure out what you think you want — which may change over time, especially if you’re just in your 30s and don’t see yourself retiring for another 40 years — you can start to make a plan. Regardless of the lifestyle you think you’ll want, suffice to say that once you stop drawing a regular paycheck, you’ll be glad to have savings to rely on.



As you start to create your plan, do your best to estimate and calculate your retirement savings goal. A general rule of thumb is to expect expenses at a level of about 80% of your current expenses. Inflation, health care costs and long-term care needs are three factors that could impact expense levels. These factors can be hard to predict several decades out, so expect that you’ll need to re-evaluate your goals as the years progress.



In saving for retirement, you want your money to work for you. You may aim to earn interest through bonds, bond funds, certificates of deposit (CDs) or high-yield savings accounts. You might seek strong returns from investments such as individual stocks, mutual funds and exchange-traded funds (ETFs). You may buy real estate to build equity and grow your net worth through asset appreciation. You may be attracted by alternative investments like cryptocurrency or collectibles. All these methods benefit from time so the sooner you start, the better. Choose tax-advantaged retirement accounts (401(k), IRA, etc.) when you can.



As you craft a retirement plan, consider your financial personality and risk tolerance levels. You want to be able to sleep at night and live with as little financial worry as you can. Some people are fine with their retirement balances dropping when the stock market hits the skids. Others become so upset that it ruins the quality of their lives. If you are a person who wants to preserve capital rather than possibly benefit from larger gains, you may want to reduce your exposure to the stock market. That’s ok if you do — there’s no one-size-fits-all in retirement planning.



Starting a retirement plan earlier allows more flexibility for adjusting goals and needs. Adjust your plan as life circumstances shift and work with a financial advisor if needed. The key is to start early, save consistently, invest wisely and adjust your plan regularly to stay on track for a comfortable retirement.


Stages of Retirement Planning

Like other aspects of life, your financial life is affected by your age. Here are tips to help you in each stage.


Young Adulthood (Ages 21-35)

Young adulthood is an ideal time to start planning for retirement, as the power of growth can work wonders over time. Even modest contributions to retirement accounts in your 20s and 30s can grow into a substantial nest egg by the time retirement age rolls around. The earlier you start saving, the less you need to set aside each month to reach your retirement goals.


During these early career years, take full advantage of employer-sponsored retirement plans like 401(k)s or 403(b)s, especially if your employer offers matching contributions. Opening an IRA can be a smart move, allowing you to further boost their retirement savings in tax-advantaged accounts from a young age. With decades until retirement, young investors can afford to take on more risk by heavily weighting their portfolios toward stocks and stock funds for higher growth potential. Developing disciplined saving habits from the start can lay a strong foundation for a secure retirement down the road.


Early Midlife (Ages 36-50)

Your 30s and 40s are the time to ramp up retirement planning efforts. With a longer career trajectory, you have an opportunity to accelerate your retirement savings rate. Try to maximize contributions to tax-advantaged accounts like 401(k)s and IRAs during this phase. Aim to contribute at least enough to capture any employer match in your workplace plan.


During these decades, periodically revisit your retirement goals and projected needs. As you advance in your career and your family situation evolves, your retirement plans may require adjustments. Regularly review your asset allocation and maintain an appropriate risk level balanced with your time horizon. If you're behind on your retirement targets, explore ways to increase contributions or look for opportunities to downsize expenses. With diligent planning during this period, you can make great strides toward funding the retirement lifestyle you envision.


Later Midlife (Ages 50-65)

As retirement inches closer in your 50s and 60s, it's time to buckle down and fine-tune your retirement plan. In this phase, you might consider gradually shifting your investment portfolio to a more conservative allocation to reduce risk exposure as retirement approaches. However, don't make your portfolio too conservative too soon, as you'll likely need growth to sustain a potential retirement of 30 years or more.


These are critical years for shoring up retirement savings shortfalls. Consider maximizing contributions to tax-advantaged plans like 401(k)s and IRAs. Downsize housing costs if appropriate, reduce expenditures where possible and eliminate debt before retiring if you can. Ensure you understand Social Security benefit provisions and familiarize yourself with RMDs for tax-deferred retirement accounts. Creating a realistic retirement income plan factoring in all income sources is key during this preretirement stage.


Other Aspects of Retirement Planning

You’ll want to consider a few other factors when planning for retirement, including online platforms for keeping track of progress, retirement calculators to discover the amounts of money you could earn if you take certain actions and the ways that RMDs can affect a retirement plan.


Online Platforms for Retirement Planning

You don’t have to rely solely on pen and paper or a self-crafted Excel spreadsheet to plan for retirement. Many free and reasonably priced online platforms exist to help you. Empower offers a free one, as does Vanguard. Other retirement planning tools that you pay for are available from platforms like Acorns and Robinhood. These tools can make the difference between the success and failure of your plan because they make it easy to keep track of where you are.


Retirement Calculators

As you move forward in your retirement planning journey, use free calculators to see where you are and where you might be heading. It’s encouraging to pull up real dollar amounts to see how the financial behaviors you adopt today can lead to exciting results. Benzinga offers an all-around calculator to jump-start the process. Use this Social Security Administration calculator to get an idea of what you might be able to count on from those benefits when you retire. The Employee Benefit Research Institute offers a free Ballpark E$timate worksheet to make plans and track progress. Investor.gov publishes a free compound interest calculator that can help you see what your bank accounts yield.


Required Minimum Distributions

RMDs are minimum amounts that must be withdrawn annually from traditional IRAs and employer-sponsored retirement plans like 401(k)s once the account holder reaches age 72 (70 1/2 if you reached that age before 2020). RMDs are calculated by dividing the prior year's Dec. 31 retirement account balance by a life expectancy factor published by the IRS. Failing to take RMDs can result in a 50% penalty tax on the amount that should have been distributed. 


Journeys Begin One Step at a Time — Retirement Planning is a Trek

While these actions can seem overwhelming, try not to let that feeling stop you from taking the first step. That can be as simple as signing up for the 401(k) at your work or opening your own IRA if your job doesn’t offer that benefit. Once you witness the growth of your tax-advantaged retirement accounts, you may feel encouraged to take further steps. 


Frequently Asked Questions


What are the crucial mistakes of retirement planning?

Failing to start saving early, underestimating life expectancy and health care costs, not accounting for inflation and lacking a diversified investment portfolio are some of the mistakes people make when planning for retirement. Additionally, not having adequate emergency funds, taking on too much risk or being too conservative with investments and overlooking the impact of taxes can derail even the most well-intentioned retirement plans. Proper planning, periodic review & adjustment of strategies and seeking professional guidance when needed, are essential to ensure financial secure in retirement.


What is the 4% rule for retirement?


The 4% rule is a widely used guideline that suggests withdrawing no more than 4% of your retirement savings during the first year and then adjusting that amount annually for inflation in subsequent years. This rule is based on historical data indicating that following this withdrawal rate should allow your savings to last for at least 30 years. However, the 4% rule depends on factors such as portfolio allocation, life expectancy and market performance. While it provides a helpful starting point, personalize withdrawal strategies based on individual circumstances and review throughout retirement.


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