Financial Planning for Retirement

Have you started to plan for retirement? Focusing on a financial retirement plan at an early age increases your chances of financial security later in life.

But what if you've fallen behind on your retirement financial planning? Whatever your situation, the right time to start saving for retirement is now! Read on to learn how financial planning for retirement works, how much you should save, and how to create a plan.

What is financial planning for retirement?

Financial retirement planning involves setting up future cash flows that allow you to quit working in your golden years. Your plan for retirement could include travel, volunteering, or moving across the country to be with family — if you’re smart about saving.

How much should I plan to save for retirement?

Financial plans for retirement vary because the amount of money you’ll need to save for retirement depends on several factors. These factors include your current age, annual income, inflation, and life expectancy. You’ll also need to consider whether you plan to work part-time, draw a pension or Social Security payments, or have rental income during retirement.

With these factors in mind, many experts recommend saving 10% to 20% of your pre-tax income each year you work, which is a good place to start.

For example, if you currently earn $60,000 per year and want to save 15% of your income, you should plan to set aside $9,000 per year in your retirement fund. That’s about $173 every two weeks. As your income increases, so should the amount you contribute to your retirement account.

While this scenario may work for some people, adjusting your retirement savings goal to your circumstances is key. Using a retirement calculator can help.

When should I start financially planning for retirement?

The earlier you plan for retirement, the better. Think about it: starting a retirement fund in your 20s gives you more time to reach your savings goal by age 65.

The good news is if you didn’t start making financial plans for retirement until your 30s or 40s, there’s still time. Of course, you may need to set aside a higher percentage of each paycheck and make more aggressive investments, but whatever your age, the time to start saving for retirement is now!

How to financially plan for retirement

All of this sounds good in theory, but a lack of knowing how to set up a retirement fund can leave many people feeling overwhelmed. And to further complicate matters, what if you’re living paycheck to paycheck? Or you don’t have access to an employer-matching retirement fund?

First, take a deep breath. You’ve got this!

Now, we’ll teach you how to start planning for retirement in a few easy steps:

1. Figure out when you can retire

The Social Security Administration currently defines 67 as the “full retirement” age for individuals born after 1960. This is when you can start collecting your full Social Security benefits, but that’s likely to change for today’s young adults. If you’re in your 20s or 30s, expect your full retirement age to be closer to 70.

But what if you don’t want to work that long? You can plan for early retirement! You just need to calculate your retirement savings plan based on when you want to retire.

2. Calculate how much you’ll need to retire

Before you can calculate how much to save each year, you need to know how much money you'll need to retire.

First, determine the amount needed to cover basic living expenses. Financial experts typically recommend that you a.) calculate your current living expenses or b.) base the amount on about 65% of your working income.

Whichever method you use, you’ll then need to calculate additional expenses you’re likely to encounter during retirement, such as travel, hobbies, long-term nursing care, and end-of-life planning. You’ll also want to consider inflation and how it will affect the future value of your savings.

3. Choose a retirement plan

Selecting a plan for retirement can be tricky. With so many options, how can you be sure you’re choosing the right one for you?

A traditional retirement plan like a 401(k), IRA, or 403(b) allows you to contribute pre-tax dollars to your savings. This way, you only pay taxes on the amount you withdraw.

Of course, there are many different types of retirement plans, including profit-sharing plans, employee stock ownership plans, SEP plans, and others. Your employer will likely offer more than one option, so you can compare the pros and cons and decide which retirement plan works best for your situation.

4. Choose retirement investments

Consider making other investments to supplement your retirement fund.

Stocks are an obvious choice. Although they’re unpredictable, the payoff can be big. Just be sure to diversify your portfolio to maximize your chances of enjoying high returns.

Other retirement investments to consider include bonds, commodities, and real estate.

5. Start saving

Once you’ve established your plan for retirement, it’s time to start saving! Remember, there are annual contribution limits on retirement accounts. Be sure to review this information to avoid the excess contribution tax.

Tips for staying on track with financial retirement planning

Financial planning for retirement is all about consistency. Here are a few tips for sticking to your financial retirement plan throughout your working years:

Create a budget

Creating a household budget now can help you better estimate how much money you’ll need to retire. Plus, when starting a retirement fund, budgeting ensures a certain amount of money goes toward your long-term financial plan.

Set up automatic transfers

Saving money is easier when you don’t have to think about it. You can usually set up the option to automatically transfer a certain amount from each paycheck into your retirement account. This way, you only need to occasionally reevaluate your retirement fund contributions, such as when your income changes.

Pay off your debt

The best way to save money for retirement is to pay off debt as soon as possible. Not only will this free up some money for retirement savings, but it will also make sure you don't enter retirement in debt.

Start planning for retirement now

Even if you’re just starting your career, the right time to plan for retirement is now. Evaluate your household budget, open a retirement account, and review your investment options. You may be surprised to discover just how quickly your retirement fund grows.

Are you still feeling overwhelmed with retirement planning because you’re living paycheck to paycheck? Consider taking out a title loan or installment loan from Advance America to consolidate debt or cover emergency expenses. We can help you get back on track!