Different people begin to worry about retirement planning at different points in life. Unfortunately, many don’t give it much thought until retirement age is visible on the horizon, perhaps 10 or even five years down the road. But, as discussed in the first of the rules for retirement planning below, the earlier you start, the better off you’ll be.
So, review these rules for retirement planning and don’t delay. If you get started early on, a comfortable retirement should be within reach if you take these tips to heart and are diligent about the follow-through.
Retirement Planning Tips
- Start as early as you can. It all comes down to one simple truth: The younger you are when you start saving for retirement, the more you’ll be able to save. Even modest savings that start at just a few hundred to a few thousand dollars per year in your 20s can lay the foundation for a retirement fund that reaches the millions when the time comes to stop working.
- Pay off high-interest debt first. Saving is an essential part of successful retirement planning, but high-interest debt like credit card debt often costs more than you earn with a savings account.
- Establish an emergency fund. Aim for at least three months’ living expenses. Climbing out of debt and saving only work if you don’t have to dip into your savings or take the credit cards out to handle financial hardships or costly emergencies that come along from time to time.
- Reduce or eliminate unnecessary expenses. Figure out where your money goes every month and look for opportunities to cut back. Reducing your cost of living is one of the key tips for wealth building and retirement planning, since the greater the difference between your income and your expenditure, the faster you can pay off debt and save.
- Create a monthly budget. And stick to it. Most people struggle to save for retirement—and many fail altogether—without a detailed spending plan. Know how much money is available to you each month, with a certain amount set aside for paying off debt and contributing to your savings.
- Make your savings deposit part of your monthly budget. Paying into your retirement fund every month should be automatic and not up for debate. Consider it a necessity just like your mortgage payments and regular bills. Setting up an automatic transfer can help.
- Get the 401(k) or other retirement fund offered by your employer. Contribute as much as you can. If your employer matches up to a certain amount of your contributions, max it out; otherwise, you’re just passing up free money. Learn about the differences between a traditional and Roth IRA and consider one that’s right for you.
- Watch your fees and expense ratios. Fees for account management and other financial services may not seem like all that much on their face, but they’ll add up over the years, cutting into savings and interest accrued. Shop around
- Have a long-term financial plan. The most successful retirement planning is about more than opening a savings account. But everyone’s situation is unique. Work with a financial advisor to develop a detailed road map to the retirement lifestyle you want to enjoy.
- Set long-term financial goals along the way. Retirement accounts go up and down with market fluctuations, yield will vary over time, and other factors will affect your retirement planning. Setting five- and 10-year goals in addition to shorter-term monthly and annual goals let you monitor your overall progress, provide opportunities to readjust plans as needed, and help keep you on track in the long game.