Whether you want to spend your retirement years on a beach or simply at home with family, building a strong nest egg is crucial to ensuring that you’re prepared for your post-work era. But with today’s economy, rising inflation, a possible recession on the horizon, the health crisis after the pandemic and the fact that life expectancy is longer, we face more challenges than past generations. 

It’s never too late nor too early to start planning for retirement. Don’t know where to start? That’s why we’re here. Make sure your golden years are as bright as possible with this guide.

 

Why is retirement planning important?

Retirement planning ensures that you and your family are set financially when you are no longer working and earning a salary. With thoughtful planning, you’ll be able to focus your attention on having the experiences you’ve always wanted but never had the time for, whether it’s travel or quality time with grandchildren. But life throws you curveballs, so it’s crucial to think beyond everyday living expenses and prepare for the unexpected: unforeseen medical expenses, spur-of-the-moment travel, home repairs and more.

Let’s start with the basics, setting your goals. The first step is deciding when you want to retire, when and how to start saving and how much money you are going to need.

 

Determine how much money you will need

While there is no clear-cut amount, you can estimate how much you will personally need by following a few simple steps:

  1. Estimate your total annual living expenses as a retiree. Make sure to include all expenses — think of housing, insurance, medical care, gas or car maintenance, travel, entertainment, food and clothing. 
  2. Subtract your estimated social security benefits, plus any other pension income you may receive from the first amount. This will give you your net annual living expenses.
  3. Some experts suggest that retirees need 70% to 90% of pre-retirement annual income. 
  4. Multiply your net annual living expenses by 4.

 

Practice responsible and consistent saving pre-retirement

Putting money aside in times of inflation can be challenging, but not impossible. It is advised that 10-15% of income¹ be saved each month towards retirement. Most employers can even help you reach your goal by matching a portion of this amount. 

But before you start squirreling away for retirement, set your emergency fund. This is some money to have on hand in case of job loss, accidents or any unforeseen events that may come your way. Experts suggest having at least six months worth of expenses set aside. 

Also, make it a goal to pay off debt before retirement, whether it’s credit cards, loans or personal debt. Think of it as a favor to your future self. Determine how much money to put aside, and if you need help to keep you accountable, check this guide with the best budgeting apps. 

 

Choose the right account for you

Although they have their pros and cons, there are a number of plans to help you save for the future.

US companies offer employer sponsored retirement plans such as 401(k)s which allow you to contribute to an account from your paycheck, before it’s been taxed in traditional 401(k) or after taxes with a Roth 401(k) (in this case, withdrawals in the future are tax-free). Your employer will administer the account, which makes it easier for you, and most will match your contributions, which means free money for you.

If that option is not available by your employer or you want to take charge, consider setting up an IRA account with a financial institution. With a traditional IRA you can make your contribution from your tax return. With a Roth IRA, you contribute after paying taxes, meaning withdrawals are tax-free. 

If you are self-employed or an entrepreneur, then maybe a Simple IRA or a Solo 401(k) are the way to go. These allow you higher contribution limits, more investment choices. Check out this guide on retirement accounts

When to start? The sooner the better. The earlier you begin to save, the bigger the fund will be. No matter what stage you are in life, start now!

 

 1. How much should I save each month https://www.tiaa.org/public/learn/personal-finance-101/how-much-of-my-income-should-i-save-every-month

 

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