A Beginner's Guide to Retirement Planning

Saving enough money to retire comfortably is a major financial goal for most people. However, knowing where to start with retirement planning can be daunting, especially if you are just beginning your career. By learning some basics about retirement accounts, savings strategies, and calculating your needs, you can put yourself on solid ground for your golden years.

Retirement Planning in Your 20s

Even when retirement seems a lifetime away in your 20s, developing savings habits and becoming investing-savvy sets positive foundations.

Open a 401k

The most essential move is to enroll in your employer's 401k plan if they offer matching contributions. Fail to contribute enough to claim the full employer match and you are essentially giving up free money. Investment earnings accumulate tax-deferred as well, maximizing compound growth.

Learn to budget

Track your income and expenses to create a budget. Identify areas you can cut back on in order to dedicate extra savings toward retirement. Getting accustomed to living below your means helps tremendously down the road.

Start an IRA

Open an Individual Retirement Account (IRA) to supplement your 401k savings. IRAs offer tax advantages, and you can contribute up to $6,000 annually as of 2023. Choose a Roth IRA for tax-free growth versus a Traditional IRA for tax-deferred growth.

Pay down high-interest debt

Carrying credit card balances with double-digit interest rates will sabotage your retirement savings. Create a plan to pay off any high-interest debt to generate cash flow for investments.

Gain investing confidence

Read up on investing basics, asset allocation strategies, and how to choose IRA/401k investments. Start conservatively with mutual funds and ETFs. Become familiar with market volatility and don't panic during downturns. Time is on your side.

Retirement Planning in Your 30s

By your 30s, your career and earnings potential may be ramping up. Leverage increased income to power up retirement savings and investment returns.

Top off 401k contributions

Increase your 401k deferral percentage annually to work up to the $22,500 maximum by 2023. Earning the full employer match is still a priority.

Continue growing your IRA

Max out your annual IRA contribution, which should be easier now with a higher income. Funnel any bonuses or tax refunds into the account as well.

Invest appropriately for timeline

Your 30s call for a diversified mix of stocks for growth and bonds for stability. You have a long runway to ride out market swings so a high allocation to stocks typically makes sense.

Review asset allocation

Revisit your retirement account asset allocation at least annually. Rebalance periodically back to target allocations to manage risk while pursuing growth.

Consider other options

Supplement retirement plans with a health savings account that doubles as a retirement fund after age 65. Rental property income, freelancing, or starting a side business can also boost retirement cash.

Have a will and insurance set up

It's not fun to think about, but having a will ensures your assets are handled as you wish should anything happen prematurely. Life insurance provides income replacement your dependents may need.

Retirement Planning in Your 40s and 50s

In your 40s, retirement is on the horizon but there is still time for planning and course corrections. Use these strategies to help maximize your retirement readiness.

Ramp up savings

Your peak earning years are ahead. Increase retirement contributions to hit 401k, IRA and other savings goals. Automate transfers to ensure consistent savings.

Review asset allocation

As retirement nears, consider gradually reducing risk by shifting some stock investments to bonds and cash. But don't get overly conservative either. Retirement can last 30 years so growth is still important.

Take advantage of catch-up contributions

Those 50 and older can make extra 401k and IRA catch-up contributions. Use this provision to stuff as much as possible into tax-advantaged accounts leading up to retirement.

Pay down debts

Entering retirement mortgage-free and with minimal other debts provides peace of mind. Make paying off your home, car loans, credit cards and other debt a priority.

Identify income sources

Project how much monthly income you can expect from Social Security based on your earnings history. Also evaluate pensions or other income streams. This helps estimate how much you need to withdraw from savings.

Discuss plans with your spouse

Make sure you and your spouse are aligned on envisioned retirement timing, locations, lifestyle, and expenses. Come up with a joint plan that works for both of you.

Retirement preparation is a lifelong process, but the foundations must be laid early on. Making retirement savings and smart investing part of your financial habits from the start allows the power of compounding to work its magic. Consult retirement planning resources to ensure you are on track for the retirement you envision. With diligent saving, wise investing, and prudent planning, you can make your retirement dreams a reality.