Retirement planning: 7 steps to take

When you think about retirement, do you envision lounging on the beach, traveling the world or relaxing at home with your grandkids? No matter what your retirement goals are, the one way to achieve them is to set a plan and stick to it.

A retirement plan can help you define your priorities and figure out how much to save. And it can guide your decisions throughout your working years. It’s a process you can start at any age—though starting early will give your money more time to grow.

Here are seven simple steps to launch your retirement plan. 

Key takeaways

• Setting a retirement age and thinking about your desired lifestyle can help you figure out how much savings you’ll need.

• Some of your monthly expenses may be covered by Social Security benefits. 

• Choosing a retirement account and starting to invest your money can make it easier to achieve your retirement goals.

Retirement planning might look a little different for everyone, but it typically involves a few basic steps:

One of the hardest parts about retirement planning is thinking about life in your 60s, 70s or 80s. How much will everything cost? What do you want your lifestyle to look like?

While you might not know the exact answers right now, it’s important to start somewhere. For instance, you can think about the age you’d like to retire and write down your financial goals. To start brainstorming, ask yourself these questions:

• How many years will my retirement last? Americans typically spend about 20 years in retirement, according to the Department of Labor. An earlier retirement age may require you to save more money. 

• What will my medical costs entail? This is usually the largest expense in retirement.

• What are my plans for retirement? Your living expenses will depend on where you’re retiring and the activities you want to do.

• How can I minimize the impact of taxes? A financial adviser may be able to help you ease your tax burden.

Throughout your working years, a portion of your wages may go toward Social Security via the FICA tax. Social Security provides income to millions of retired and disabled Americans each year.

If you’re eligible to receive benefits, you can set up an account to review your earnings reports and use calculators to estimate your future monthly stipend. Another option is visiting a Social Security office.

If you don’t think Social Security benefits will cover all of your expenses in retirement, you can set a savings goal for yourself. The amount you’ll need to save depends on how much you think you’ll need in retirement.

Some experts say you’ll need to replace 80% to 90% of your pre-retirement income. Another guideline says you should save 12 times your pre-retirement salary, while yet another says you need at least $1 million.

These figures can act as a guide, but everyone’s situation will be different. You might benefit from talking with a financial adviser to decide how much you’ll need in retirement and how much to set aside each month.

Once you’ve decided how much to save each month, you may need to adjust your budget to fit those contributions.

Start by checking your bank statements to determine your monthly earnings. Then list your living expenses and how much you spend on them each month. Subtract your expenses from your income. From the amount that’s left over, figure out how much you want to contribute toward retirement each month.

You may need to cut some expenses from your budget or find creative ways to save.

Once you start saving money, you’ll want to find a good place to put it. Checking and savings accounts may be a good fit for your daily expenses and short-term goals, while a retirement account is a better fit for long-term savings. Most retirement accounts come with tax benefits.

Here are a few to consider:  

• IRA plans: An individual retirement account, or IRA, is set up by an individual instead of an employer. You can set up recurring contributions or make sporadic deposits.

• 401(k) plans: With a 401(k), your employer deducts a percentage of your paychecks and invests it on your behalf. Many employers match a portion of your contributions. 

• Pensions: A pension is a retirement plan where you receive regular, guaranteed payments from a former employer during retirement. The employer may pay for most or all of the plan.

Investing involves buying stocks, bonds and other assets. Earning a return on those investments can help you grow your money and eventually retire with your savings.

Contributing to an IRA or 401(k) is one form of investing. But you can also open a brokerage account and invest in products like mutual funds and exchange-traded funds.

Diversification across your investments can help you reduce risk: If one industry or company loses money, other investments in your portfolio might help make up for it.

Saving for retirement may become difficult when big life events come up—like a wedding, the birth of a child or the loss of a job. If you can’t make contributions every now and then, that’s OK. Just make sure you’re still saving regularly and adjusting your plan when needed.

If you don’t have an employer-sponsored plan, then automating your contributions can help. You can set up automatic transfers so you don’t forget to save.

It’s also a good idea to leave your retirement savings untouched. If you think you’ll be tempted to dip into your retirement account when an unexpected issue arises, consider creating an emergency fund.

At some point in your life, you might want—or need—to stop working. Retirement planning can help you do that because it helps you create realistic goals for your future financial security.

And when you start saving for retirement early, you can build up a nest egg and tap into it when the time is right.