There are several steps in planning for retirement, and the ultimate goal is to have enough money to stop working and do whatever you want. Our goal with this retirement planning guide is to help you achieve that goal.
Step 1: Know when to start planning for retirement
When should you start planning for retirement? In short, now. In three words, twentysomethings. The sooner you start planning, the more time you have to grow your money.
Still, it’s never too late to start planning for retirement. Even if you haven’t even considered retiring, you don’t feel like your ship has sailed. Every dollar you can save now will be greatly appreciated later. Invest strategically and you won’t catch up for long.
Step 2: determine how much money to withdraw
The amount of money you need for retirement depends on your current income and expenses and how you think those expenses will change during retirement.
The typical recommendation is to replace 70-90% of your annual early retirement income with savings and social security.
Step 3: prioritize your financial goals
Retirement is probably not your only savings goal. Many people have financial goals that they think are more urgent, such as paying off credit card or student loan debt or creating an emergency fund.
In general, you want to save while creating your emergency retirement fund, especially if you have a company pension plan that covers part of your contributions.
Step 4: choose the retirement plan that suits for you
One of the pillars of retirement planning is not only knowing how much to save but also where.
If you have a 401 (k) retirement plan or another dollar equivalent employer, this is where you should start.
If you do not have an occupational pension, you can open your own pension account
There is no best retirement plan, but there is probably a better retirement plan, or a combination of retirement accounts, for you. In general, the best plans offer tax benefits and, if necessary, an incentive for additional savings, such as a match. Because of this, in many cases, a 401 (k) match with an employer is the best place to start for many.
If you do not have access to a work schedule (or the one offered does not suit you), or if you are already contributing to a 401 (k) and are looking for the best options to plan for additional retirement, you may want to consider an IRA. This is a plan that you open yourself with an online broker or other account providers. An IRA is not a consolation prize.
Step 5: choose your retirement plan
Retirement accounts provide access to a wide variety of investments, including stocks, bonds, and mutual funds. Determining the right mix of investments depends on how long you have before you need the money and your confidence in the risk.
Typically, the idea is to invest aggressively at a young age and then slowly return to a more conservative investment mix as you approach retirement age. This is because you have plenty of time for your investment, in the beginning, to deal with market volatility – a few bad years won’t ruin the bank, and your savings should benefit greatly from the market holder’s long-term growth history. Investing in retirement grows with you as you change jobs, build your pedigree, endure the ups and downs of the stock market, and approach your retirement expiration date.
Your investments don’t necessarily require constant child care. If you want to manage your retirement savings yourself, you can do so with a handful of affordable mutual funds. Those who prefer professional advice can hire a financial advisor.