Is your retirement starting to appear on the horizon? If so, it’s time to figure out what you’ll do when you reach it.
First things first: what’s the best age to retire? This depends on when you feel like it and when you’ll have saved enough money to live comfortably. You can retire as early as 62, but your Social Security benefits will only increase if you keep working.
Whether you retire early or not, knowing how to plan for retirement makes things much easier. These five simple tips will help you get started.
1. Know When to Start
As a general rule, the best time to start planning for retirement is as early as possible. If you can do it in your 20s, go ahead. The earlier you start saving, the more time you give your money to grow.
That said, this doesn’t mean you can be too late to start retirement planning. Every dollar you manage to save now will come in handy later. All it takes is a few strategic investments and you’ll be back in the saddle.
2. Choose the Best Retirement Plan
When it comes to how to retire, the key question is where to save your money. If you have a 401(k) or another workplace retirement plan, you can start there. If not, consider opening your own retirement account.
As for which plan to choose, consider the advantages they provide. These include tax deductions and additional savings incentives. For example, backdoor Roth IRA contributions are a great way to boost your retirement savings.
3. Determine How Much Money You Need
How much do you need to retire? This depends on your current income and expenses. Consider how those expenses might change when you’re retired, and you’ll be much closer to figuring out the exact number.
Most people should aim to replace 70% to 90% of their income through Social Security and savings. For instance, let’s say you earn an average of $70,000 per year. In this case, you can expect you’ll need 49,000 to 63,000 per year in retirement.
4. Select the Right Investments
Retirement accounts provide access to bonds, stocks, and other investment types. To determine the right investments for you, consider how long you have until you need the money. Risk aversion plays a key role here as well.
For best results, invest aggressively when you’re young. Early on, you can give your money more time to weather market fluctuations. As you get older, you can dial it down to a more conservative mix of investments.
5. Prioritize Savings Goals
Chances are, retirement isn’t your only financial goal. For example, you may still be paying off your student loans or credit card debt. Don’t be afraid to focus on these goals over retirement planning if it makes sense to do it.
If one of these goals is an emergency fund, consider saving for retirement at the same time. If you have an employer retirement plan, it will match any portion of your contributions.
How to Plan for Retirement Success
Of course, knowing how to plan for retirement is only half the battle. You’ll also need to execute your strategy, which will only work if you’ve set realistic goals. Again: the earlier you start planning for retirement, the sooner it will start to make sense.
Looking for more effective retirement tips? Keep checking out our finance-related content!