Regardless of your age, preparing for retirement can feel overwhelming, but the earlier you start, the better. Then, you can take easy steps to set yourself up for success later in life.
It’s easy to push it off and procrastinate planning because retirement can feel far off. Perhaps you’re not ready to think that far into the future, or you think it’s too soon to begin preparing. However, as Geoffrey Chaucer told us, “time waits for no man,” so it’s never too soon to start laying the foundation for the life you want to lead in the future.
Here are 13 actionable steps you can take today to start preparing for retirement at any stage of your life.
1. Set Goals
The first step of goal setting is brainstorming about your retirement dreams and asking yourself important questions. For example, when would you like to retire? Would you like to retire at the normal retirement age, or did you have a different age in mind?
Ask questions about the type of retirement lifestyle you’d like to lead in your golden years.
- How much retirement income will you need to live?
- Would you want to maintain your current standard of living? Would you have enough money to do so?
- How many sources of income would you like to have?
- Do you see yourself working a part-time job after you retire? Or would you prefer volunteer work?
- What do you hope to do with your free time?
Ask yourself questions to determine where you want to live.
- Do you see yourself living in a different city? Maybe another part of the world?
- Would you like to travel often?
- Would you like to downsize, so you require less money to live?
It’s important to paint as clear of a picture as possible so you can dial in a detailed plan for your retirement. Of course, your plan can change over time; however, getting as specific as possible will help you be more thorough in your planning.
Once you’ve determined your retirement income needs, jump online and enter your information into a retirement calculator. This tool will give you a good idea of how much money you should be saving to reach your goals.
2. Understand Your Numbers
Once you determine where you want to go, it’s essential to understand where you are starting. The best way to do so is to take inventory of your current financial situation. In doing so, you can create a working budget that fits your needs. Budgeting your money is the best way to understand your income and expenses.
It’s challenging to know if you’re on track to reach your financial goals when you’re not paying attention to your money and don’t understand your numbers. Learning how to live on a budget will allow you to make intentional choices with your spending and saving. In addition, building a solid budgeting habit will help you transition more quickly to your new retirement budget when the time comes.
3. Start Immediately
If you’re later in life and you’ve yet to begin saving for retirement, let go of any guilt or shame you may feel. Unfortunately, it’s impossible to go back in time and start preparing at an earlier date. It is, however, possible to start right now, today.
Don’t overthink it, don’t avoid it; take action.
Grab your phone, pull up your bank account, and transfer some money to savings. Any amount is sufficient. The intent isn’t to fund your entire retirement but rather to take the first step toward your retirement goals.
Taking this first step will solidify your new commitment to your financial future – you can iron out the details as you go.
4. Explore Your Options
One of the best things you can do for yourself when preparing for retirement is to do your research. Do you have a good understanding of your options when deciding how you will save for retirement? Are you well-versed in different investment vehicles, such as stocks and index funds, and which may better fit you? Does your employer offer a 401k or a 403 b? Do you understand how your pension plan works if you’re a public service employee?
Are you clear on the difference between a Roth IRA and a Traditional IRA? Do you understand the difference between saving money in a traditional savings account versus an individual retirement account (IRA?) Are you aware of the income and annual contribution limits?
Even if you elect to work with a retirement professional, it’s still a good idea to educate yourself on the different retirement investments available to you. The number of options can be overwhelming, and each carries its own set of rules and regulations. Not to mention, it’s rarely a good idea to put your nest egg in jeopardy by investing in products you don’t fully understand.
Commit to this vital step of researching whether your retirement strategy includes real estate, crypto, or mutual funds because the more you know, the better off you’ll be.
5. Create a Plan
The next step is creating your plan for retirement, which isn’t as complicated as it sounds. It’s just a matter of taking your current numbers and the numbers you got from the retirement calculator and determining the amount and frequency you want to save for retirement.
Remember that your financial situation will ebb and flow throughout your life. You can expect periods of abundance and possible bouts of financial trouble. Therefore, it’s essential to review and revise your plan accordingly over the years to ensure you are staying on track to reach your goal.
Important things to consider when creating your retirement plan:
- Where will you save the money?
- How often will you contribute?
- How much will you contribute?
- What will your income sources be?
- What will your health care costs be?
- What will your financial needs look be?
- What financial obligations will you have?
- How much risk are you willing to take?
6. Pay Off Debt
Suppose you have debt other than your primary mortgage. In that case, this is an excellent time to create a plan to get out of debt while concurrently saving for retirement. Paying off your debt will free up more of your income each month and allow you to commit more of your money toward retirement.
Focus on paying any credit cards, student loans, medical expenses, tax liens, etc., in full before charging full steam ahead, stockpiling cash for retirement.
Being strategic when paying off your debt can result in getting out of debt more quickly and paying less interest as you’re working to become debt-free. But, more importantly, once you’re debt-free, you’ll have the freedom to save and invest more significant amounts because your money will be your own.
7. Maintain an Emergency Fund
Protecting your budget by saving additional money in an emergency fund will give you financial security. Stashing away 3-6 months of living expenses for a rainy day will keep you from having to use debt – or worse, dip into your retirement – in the case of an emergency.
Ideally, you’ll keep this money separate from your primary finances to avoid accidental spending yet liquid enough that you can access it at any time.
8. Educate Yourself
As you begin preparing for retirement, making smart decisions with your money becomes more crucial. And the best way to make smart decisions is always to be learning.
Consume as much financial information as possible; read books about money, listen to podcasts, and talk to people you know who have been successful with their finances. As you become more educated in money matters, you’ll learn to manage your money more wisely throughout your life.
9. Understand Social Security
Understanding how Social Security works is another crucial part of preparing for retirement. If you’re unfamiliar with benefits or how you can collect payments, contact the Social Security Administration online or visit your local Social Security Office for additional information.
They will provide you with literature or refer you to helpful web pages and social security calculators to help you learn more about Social Security retirement benefits.
10. Protect Yourself and Your Loved Ones
As your net worth grows and you get closer to your retirement years, you’d be wise not to overlook estate planning and insurance. Sure, it may feel a bit morbid and even dull; however, it is a necessary part of preparing for retirement.
Your insurance needs will vary depending on multiple factors, including (but not limited to) your income and financial assets, your living situation, and whether or not you are in good health.
Life insurance, health insurance, and possibly even long-term care insurance are all options worth exploring to protect your financial security.
Estate planning, however, is intended to protect your family members and your assets. Therefore, one of the primary purposes of an estate plan is to reduce the tax burden on your future beneficiaries.
A will, part of an estate plan, outlines how your assets will be managed or divided should you become incompetent or pass on and will also dictate legal guardians if you have minor children.
Many people are predisposed to take care of others before themselves. Retirement, however, is one time it becomes crucial to prioritize yourself and your future needs. While it may feel selfish or unnatural to you, understand it is necessary.
Even if you have people in your life who are willing to help you in your retirement, there’s no guarantee they will still be around to make good on their promise once you are retired. However, putting your needs ahead of those around you will afford you a comfortable retirement. At that time, you can take care of others again if you so desire.
12. Seek Help
Should you lack the confidence or interest in preparing for retirement on your own, it’s good to seek help from a professional specializing in retirement planning. A licensed financial planner or financial advisor will help you create an investment strategy, understand tax benefits, and advise you on your distribution options.
Moreover, a trusted financial advisor will be there to guide you through the retirement process and give you peace of mind along the way.
13. Stay the Course
One of the best ways to prepare for retirement is to view retirement as a marathon and not a sprint. When investing your money in the stock market, you will experience many highs and many lows. While it’s easy to get sucked into the news and current events related to the stock market, the best thing you can do is nothing at all.
When the media warns you to pull your money out of the market, focusing on “time in the market” rather than “timing” the market will set you up for success.
Even the most experienced financial advisors cannot predict and successfully time the market; it is a risky move that rarely pays off. However, by investing for retirement with the intention of not touching it before retirement, you’ll avoid harsh penalties and reap the magical benefits of compound interest.
Above all, the most important thing when preparing for retirement is to stay the course. Being consistent, sticking to your plan, and avoiding distractions will virtually guarantee you a comfortable, secure retirement.
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Kristin Stones is the owner of Cents + Purpose, an online community dedicated to sharing practical personal finance content. Her mission is to equip women with the necessary tools and knowledge to take back control of their money and live a more purposeful life. She creates actionable content to help her audience achieve financial wellness using her simple approach to managing money - all learned through her personal experience of paying off almost $55,000 of debt in under two years.