Retirement Planning –
It’s Never Too Early (or Late) to Start!

When it comes to retirement planning, there’s no such thing as too early. The earlier you start saving, the more time your money has to grow. But even if you’re nearing retirement age, it’s not too late to start planning. There are plenty of ways to catch up. Retirement planning is important for everyone, no matter what age you are. Here are a few tips to get you started.

Start by Reviewing Your Finances.

The first step to retirement planning is getting a good understanding of your financial situation. Look at your current income and expenses, as well as any savings or debts you may have. This will help you understand how much money you have free to save. Think about how much you want or need to save for retirement and what investments might be the best fit for you.

It can be intimidating to see your output every month. It can also be insightful to know if you are overspending and have room to cut back. Creating a workbook in programs like Excel is a great way to track your spending over time. Utilize budget planners that are available online to get organized. Dedicate time weekly or monthly to reconcile your income and spending. Review your monthly subscriptions. Are you still paying a monthly fee for something you don’t use?

Create a Budget.

Now that you have an idea of what your financial situation looks like, create a budget. Retirement planning is all about making sure you are living below your means and saving as much as possible. Your budget should reflect the lifestyle you want to live in retirement. Consider how much money you will need for expenses such as housing, food, travel, and other lifestyle choices. Set achievable goals. After reviewing your spending, think about areas you can cut back on. Cutting out your morning coffee run may be challenging at first but rewarding when you see that amount in your savings. Think about how much you want to save. Plan and allocate savings for emergencies like car repairs, short-term goals like getting that new iPad, long-term goals like a down payment for a house, and ultimately your retirement.

Pay Down Debts.

Paying down debts will free up money for your savings. Consider your debts: student loans, credit cards, mortgages, and car loans. Evaluate and prioritize them in order of interest rate. Start by paying off high-interest debt first then gradually work down the list. Think about payment options like extended terms or refinancing to save on interest fees. If you can pay off all of your debts, you will have more to save for retirement.

Start Saving.

The earlier you start saving, the better. Why? Time is one of the biggest factors in growing your nest egg. The sooner you start saving, the more time your money has to grow through compound interest. For example, let’s say you’re 30 years old and you start investing $200 per month into a retirement account that earns an annual return of 7%. If you continue investing $200 per month until you’re 60 years old, you’ll have saved $144,000. But if you wait until you’re 40 years old to start investing, you’ll have saved only $96,000 by the time you’re 60—even though you’re making the same monthly contribution. 

If you do not have a savings account, consider opening one. This is a great way to separate your daily spending from the money you want to preserve. Find a savings account that can work for you. Consider the interest rate, minimum balance requirements, and fees associated with the account. Compare different banks to see which one works best for you and your budget. A savings account is great for your emergency, short-term, and long-term savings goals. Try setting up an automatic transfer from your checking account to savings or retirement accounts so that the money is taken out of your account as soon as you get paid. This helps with making saving a habit and takes away the temptation of spending it.

For retirement, look into putting your money into a 401(k) or another employer-sponsored retirement plan. Many employers offer some kind of retirement savings plan, such as a 401(k), 403(b), or 457 plan. If your employer offers a 401(k) match, be sure to contribute at least enough to receive the full match. This is essentially free money!

If you don’t have access to a 401(k), consider opening or contributing to an individual retirement account (IRA). There are many different types of IRAs, but the most popular are traditional and Roth IRAs. With a traditional IRA, your contributions are tax-deductible and grow tax-deferred until you withdraw them in retirement. With a Roth IRA, your contributions are made after tax. These contributions grow tax-free and can be withdrawn tax-free in retirement. Depending on your age and your retirement goals, the amount you should contribute will vary. If you are saving to buy a house, it may not be feasible to max out your retirement contributions but you want to dedicate some amount to your retirement even if it is tough.

As your income increases, make sure to increase your retirement savings as well. It can be tempting to use that extra money to upgrade your lifestyle, but remember that the earlier you start saving for retirement, the more time your money has to grow. If possible, try to save 15% of your income for retirement—including any employer-matching contributions. 

Consider Contingencies.

Life is unpredictable. The cost of living has been rapidly increasing. Planning for your future by saving will help you navigate through any contingencies that may pop up. Try to save at least 3-6 months of your income as emergency funds. This will help you avoid taking on additional debts if emergency expenses arise. Additionally, think about planning for any big life changes like marriage, having children, and job transitions. Saving for contingencies can help you not touch your retirement savings.

Think about Your Retirement and Potential Income.

In addition to any savings, you will accumulate, think about other sources of income that will be available during retirement. This may include pensions, annuities, or social security benefits. If you’re still working, factor in any income from salaries or bonuses. Once you have an estimate of your total retirement income, you can start planning how best to use those funds to cover your living expenses.

Delaying social security or tapping into your retirement portfolio can help you maximize your income over the long run. It is highly recommended that you work with a financial planner or do your research on all of your options in retirement. A qualified financial advisor can help simplify the process of retirement planning by getting to know both you and your unique circumstances. Financial planners can help identify any potential roadblocks that may stand in the way of achieving your retirement goals and develop strategies for overcoming them. Working with an advisor can also provide much-needed accountability and help keep emotion out of decision-making. However, it’s important to find an advisor who aligns with your personal values and whose advice feels trustworthy.

Make Your Money Work for You.

Once you’ve started saving, it’s important to invest your money wisely. Many people choose to invest in stocks, which can offer the potential for high returns but also come with the risk of loss. Investing in stocks is not for everyone. There are other options available, such as bonds and mutual funds. These tend to be less volatile than stocks but may also provide lower returns. 

Conclusion

While there’s no magic formula for a comfortable retirement, careful planning can go a long way toward ensuring a bright future. By taking the time to evaluate your savings, understand your sources of income, and create a budget for retirement living, you can make the most of your retirement years. No matter what age you are, it’s never too late – or too early – to start planning for retirement!