Retirement planning is a process that begins as soon as you start contemplating the financial consequences of ending work and extends for the rest of your life. While every retirement planning process is unique in the specific details, most retirement savers encounter some common milestones along the way. Looking ahead to these milestones and what it takes to prepare for them can improve the chances you’ll have a comfortable and secure retirement. A trusted financial advisor can help you get started.
The Retirement Planning Journey
If retirement planning can be considered a journey, the milestones along the way range from starting to save for the first time to switching to distributing income in the transition to retirement and beyond. Here’s how each will look, including their likely timing, particular significance, ways of evaluating progress and strategies for preparing to reach them.
Starting to Save
At some point, it occurs to most working people that someday they would like to be able to stop working for money. The next question is how to make that happen, which is usually followed by the realization that they will most likely need to put away some money now to pay for their planned future retirement. This usually happens in early adulthood, around the mid-20s.
Starting to save is important because it’s the first step to establishing a lifelong saving habit. Starting early also makes the most of the power of compounding, which can greatly increase the ultimate size of a retirement nest egg.
At this point, it may be enough to simply get started. The amount of money being put away could be less significant than the fact that retirement planning and saving have begun. Common strategies for reaching this milestone include starting as early as possible and automating savings with paycheck deductions.
Maximizing Employer Matching
As retirement saver reaches what is roughly the midpoint of their career in their 30s and 40s, many will be working in a job with an employer-sponsored retirement savings plan that offers to match their contributions. This can realistically be considered a form of free money and represents a powerful aid to accumulating retirement savings.
At this point, it’s important to ensure that personal contributions meet the maximum employer match or more. One way to prepare for this milestone is to increase personal contributions to the retirement plan in step with rising income.
Later in a worker’s career, with retirement savings accumulating and income nearing its peak, it is common to turn attention to reducing debt. Paying off mortgages, car loans, student loans and the like are frequent targets of retirement savers in this period.
Decreasing debt is significant for retirement because, as monthly debt service payments disappear or decline, it frees up more money to contribute to retirement accounts. Also, it’s ideal to enter retirement without significant debt payments, so more income can go to covering living expenses.
At a minimum, it’s a good idea to seek to pay off high-interest debts such as credit cards and personal loans around the time of this milestone. A debt snowball is a common and proven strategy for doing this as efficiently and quickly as possible.
Approaching Savings Goals
As retirement nears in someone’s 50s and 60s, it is time to evaluate accumulated savings to determine whether a nest egg will be able to fund an appropriate lifestyle after leaving the workforce. This involves projecting post-retirement income needs and assessing the potential for generating income.
Now is when many planners develop retirement spending budgets. It may be necessary to adjust post-retirement lifestyle expectations to fit available financial resources. A retirement saver could have to tighten their current budget to free up money to put more in savings. Another approach is to alter the investment strategy to emphasize greater growth potential, perhaps by taking more risks.
Transitioning to Retirement
Usually, in their 60s, most people stop generating income from working and switch their retirement financial plan from one that accumulates savings to one that distributes income. If the available income is sufficient to cover the desired lifestyle expenses, this milestone has been navigated successfully.
The transition often involves adjustments to a portfolio and to the investment strategy, however. The same investments that helped a portfolio increase in size may not be ideal for producing a steady, reliable stream of income from diverse sources. For this reason, significant changes in individual investments and asset classes may be in order.
In the transition to retirement, you might consider when to start claiming Social Security benefits if you’re eligible, as this is an important source of retirement income for most people. Another significant concern about now is healthcare costs, which often rise as people age.
Retirement planning milestones mark important steps and turning points in your progress toward achieving financial security in your golden years. Each milestone typically occurs at a specific age or state of life. Each also has its own benchmarks for being evaluated and strategies for achieving it. Anticipating and preparing for retirement planning milestones can improve your chances of reaching them and fulfilling your retirement vision.
Tips for Retirement Planning
- If you’re unsure about navigating retirement planning milestones such as getting started, getting a full employer match and transitioning from accumulation to distribution, a financial advisor can help clarify matters. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- For specific answers to questions about how much you need to save starting now in order to have enough to cover your budgeted expenses in you can turn to SmartAsset’s Retirement Calculator.
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