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When Should You Start Retirement Planning?

Written by Than Merrill

Everyone wants a safe and secure retirement, but how does one exactly get there? Retirement planning doesn’t have to be hard, but you do need to know the right steps. In this guide, we’ll give you the 7 key steps to retirement planning. It all starts with thinking about what financial goals you need to hit and how long you have to achieve them. Then, you’ll learn how to save and invest so that you can achieve that blissful retirement you envision.

How Does Retirement Work?

Retirement is the phase of life in which an individual no longer works. This concept has been around since the 18th century when life expectancies began to increase.

The timing of when people choose to retire can depend on a couple of factors. One factor is physical ability; a person might retire because they are no longer physically able to work due to age or medical conditions. A second factor is the eligibility to receive certain retirement benefits, such as social security or a pension fund. A person might turn 65 years old, for example, and choose to retire because they have become eligible to receive their retirement benefits.

Another option is “semi-retirement,” which means that you have reached retirement age but have decided to keep working a limited amount. This allows you to receive partial retirement benefits while earning a limited income.

Retirement plan

What Is Retirement Planning?

Retirement planning is the process of preparing for the life you want after you’ve stopped working. Coming up with a solid retirement plan starts with defining some goals. For example, you can ask yourself questions such as, “what kind of lifestyle do I want to have?” and “how much income will I need to maintain this lifestyle?”

Once you have a better idea of what your desired retirement looks like, you want to identify what gaps you need to fill to reach your goals. Financial planning for retirement includes estimating expenses, identifying possible income sources, and creating a saving and investing plan.

Finally, keep in mind that retirement planning is a life-long process. Many people make the mistake of enrolling in a 401(k) plan through their employer and then forgetting it. Instead, it’s something you should plan to revisit with a retirement or financial advisor at regular intervals. This is because your retirement needs and goals will likely shift over time, and your retirement strategy’s periodic fine-tuning will be necessary.

Do you feel ready to start planning for your retirement? Below, we’ve broken the process down into 7 steps that are easy to follow so that you can get started today.

7 Steps To Planning For Retirement

Planning for retirement starts with some goal-setting. You must develop an understanding of your retirement goals and needs, as well as any financial gaps that you might have. Don’t worry, though! No one is expected to be completely ready for retirement at the get-go. Again, retirement planning is a life-long process, and committing to it is an important first step. You’ll be feeling confident in no time by following these 7 key steps to planning for retirement:

  1. Understand Your Timeline

  2. Set Your Financial Needs For Retirement

  3. Calculate After-Tax Rate

  4. Determine Investment Goals & Risk Tolerance

  5. Begin Saving For Retirement

  6. Invest & Build Wealth

  7. Start Estate Planning

1. Understand Your Timeline

The first thing you’ll want to determine is exactly how much time you have to prepare for retirement. To do this, take your expected retirement age and subtract it by your current age. The resulting number is your retirement planning timeline. For example, let’s say you plan to retire at the age of 65, and you’re currently 30 years old. This means that you have 35 years before you retire.

Those who have a longer retirement timeline can afford to take riskier approaches, such as investing primarily in stocks. This is because you have time to withstand and recover from any volatility. If you have less time before you retire, it’s generally advisable to take a more conservative approach.

2. Set Your Financial Needs For Retirement

Next, it’s time to estimate exactly how much money you need in retirement. This is a balancing act between your desired retirement lifestyle and being realistic about how much in expenses you’ll likely be able to afford. There used to be a common assumption that individuals spend roughly 20 percent less in retirement, but this can be unrealistic.

For some, the mortgage may not be paid off, or unexpected medical expenses arise. Because they are not working, retirees may find themselves splurging on travel or other bucket-list items. It’s essential to calculate the cost of healthcare expenses and the increasing cost of living.

3. Calculate After-Tax Rate

Most retirement plans include investing in a portfolio of various stocks, bonds, and annuities. Ideally, your portfolio will grow with you as you age and come to retirement; you’ll obtain retirement income via returns. Depending on the type of investment account, your returns will likely be taxed.

Because you’ll want to estimate your retirement income and expenses as accurately as possible, be sure to calculate your rate of return on an after-tax basis. This is because your rate of return will be higher than what you get to pocket because of taxes.

4. Determine Investment Goals & Risk Tolerance

The majority of retirement plans include an investment strategy. Part of this includes balancing your ability to tolerate risk with meeting your retirement objectives. It’s helpful to work with a financial advisor to talk about your objectives and how much you’re able to stomach to meet these goals.

A great financial advisor will work with you to develop an investment portfolio that offers various risk levels. That way, you’ll be able to rest easy knowing that while some of your riskier investments might experience some volatility, you’ll have some reliable investments that have a lower risk. Keep in mind, however, that the lower the risk, the lower the yield. You’ll have to learn to tolerate some risk if you hope to earn some sizable returns.

5. Start Saving For Retirement

Now that you’ve laid the groundwork on how much time you have until retirement and how much you need to save, it’s time to start figuring out where to start saving for retirement. Once you start doing some research, you’ll soon find that there are many options out there. You’re encouraged to explore these options, but here are three things you should do no matter what:

  1. Obtain free money. If you have access to free money, always take advantage of it. If your company offers a sponsored retirement plan, such as a 401(k), they also often offer employer matching. This means that they will contribute the same amount of money you put into your 401(k) account. However, there may be a required minimum contribution you must meet before your employer matches it, so be sure to meet any requirements.

  2. Set up an IRA. In addition to your employer 401(k), you can also set up a supplemental individual retirement account (IRA) or Roth IRA. This allows you to create additional retirement savings with different sets of rules and benefits. Learn more about Roth IRA investing for retirement here.

  3. Max out your contribution limits. The current annual IRA contribution limit is $6,000, or $7,000 if you’re age 50 or above. If you find that you’ve hit your IRA contribution limit for the year, then go back and start making your additional contributions toward your 401(k) plan.

6. Invest & Build Wealth

Investing in your retirement includes a wide range of options, such as stocks, bonds, and mutual funds. Deciding what you’d like to invest in depends on your retirement timeline (see Step 1) and how much risk you can tolerate (see Step 4.) You’ll also want to check in with yourself and get a sense of how much involvement you want to have. Do you want to manage all of your accounts yourself? Do you prefer to have someone else do the work for you?

Whether you decide to manage your investments completely on your own or work with an investing expert, you’ll need to know some wealth-building tips. Check out the below pieces of advice to start developing your investor mindset:

  1. Get on board with automation. Life can be hectic, and saving for retirement can quickly become an afterthought. This rings especially true when various expenses and temptations get in the way. Prioritize your retirement savings by paying yourself first. This is easiest to do by making your process completely automated. You can contact your employer’s accounting department to find out how to have your 401(k) contributions deducted automatically from each paycheck. You can also set up automatic payments from your bank account to your investment accounts. By putting in a little work up front, you can fully automate your process to ensure that you’re saving, even while you sleep.

  2. Revisit your accounts annually. Although automation is great, you don’t want to rely so heavily on your process that you completely forget about your retirement goals. Make a plan to revisit your retirement savings and investment accounts once a year. Perhaps you can mark it on your calendar or ask your financial advisor to set up annual meetings so that you won’t forget. It’s important to regularly review your accounts and make sure you’re still on track to meeting your goals. Additionally, this is a time to think about whether some of your goals might have changed, and if your strategy might need to be adjusted.

  3. Regularly boost your savings rate. The best way to ensure you’re meeting your retirement goals is to increase your contributions regularly. You could commit to increasing your savings rate one percentage point per year, as long as it makes sense to do so financially. Another tip is to increase your rate every time your income increases. A tiny boost to your retirement savings won’t be missed, and the long-term benefits can be profound.

  4. Minimize fees. Just the way tiny boosts to your savings can have profound long-term effects, so can fees. Even the smallest fees can add up significantly over time. Although not all fees will be avoidable, make sure to minimize them by doing your research and avoiding any scenarios where you’ll lose more than you needed to.

  5. Stick with it. Saving for retirement is a life-long commitment. Your investment goals may change as you go through life, and so will your investment strategy. No matter what those changes might be, the one thing that shouldn’t change is your commitment. Even when you hit some volatility with the stock market, remember that these changes are temporary. The cost of lost opportunity by not investing is much higher than any temporary downturns in the market.

7. Start Estate Planning

Last but not least, protect all of your retirement assets by planning your estate. Estate planning is the process of protecting and insuring your assets, which helps protect your legacy and loved ones.

If anything were to ever happen to you, an estate plan would ensure that your hard-earned retirement savings and investments will be distributed to those you designate. This way, your loved ones will not experience hardship upon your death.

Estate planning is often associated with the idea that it is an expensive, laborious, legal process for the wealthy. However, this couldn’t be farther from the truth. Absolutely anyone can benefit from having an estate plan, and many easy and inexpensive options make estate planning accessible.

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What to do in retirement

When Is The Best Time To Start Saving For Retirement?

Put simply, the best time to start saving for retirement is now. More specifically, and if possible, in your 20s. Any retiree would give you the retirement advice to start as early as you possibly can. When you start young, you have more time to save, invest, and take risks. (And to recover from these risks if needed.) Also, you can maximize the advantage of compounding when you give yourself a longer time horizon.

With that being said, don’t feel discouraged if you are well past your 20s. Any and every dollar you can put away toward retirement today will be appreciated later. Work with your financial advisor to create a strategic plan to ensure that you can still meet your ideal retirement goals.


What do you envision your retirement looking like? Will you be off in some tropical destination, sipping on drinks on the beach? Will you be a traveling jet-setter? Will you relocate closer to family to help raise your grandchildren? Regardless of how humble or lofty your goals might be, retirement planning is absolutely critical to have a safe and secure retirement. If you haven’t already started, start preparing for your retirement today to make sure you have as much time as possible to grow your wealth. In the future, you’ll surely be thanking yourself for taking the proper steps to achieve financial freedom in retirement.

What are some tips for retirement planning that you would vote to get included in our guide? Let us know in the comments below!

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