But if most workers who aren’t that far away from retirement have just $100,000 saved, they’re not going to achieve that $1 million goal by the time they reach 65 or even 75 years of age—even with aggressive contributions and investments. Which means they’ll need to continue working well into retirement to avoid running out of money. If you want to downshift and give yourself a traditional retirement, rather than working until you die, you’ll need to take some steps right now. Here’s how to start retirement planning, or get back on track.
401(k) (traditional or Roth) 403(b) 457(b) Pension
Sign up for your retirement plan as soon as you’re able to. The sooner you start taking advantage of this benefit, the more you’ll start to save. For instance, if you save $50 a month (at the beginning of each month) and expect a 6% annual return, you’ll have $3,489 after five years, $14,614 after 15 years, and $23,218 after 20 years. If you save $500 a month, you’ll have $232,176 after 20 years. If your employer doesn’t offer a work-sponsored retirement account, open an individual retirement account (IRA) These are a good option, whether your job offers a retirement plan or not, but are the best solution if you don’t have any other vehicle for retirement savings. The main difference between a Roth and a traditional retirement plan is when you get taxed (now versus later). The main difference between an IRA and a 401(k) is how much you can contribute to your plan and if the account is sponsored by your employer. For instance, IRA contributions are capped at $6,000 per year in 2020 and 2021 (or $7,000, if you’re over 50 years of age). You can have multiple IRAs, but you can only contribute the maximum amount across all of your accounts. That could change depending on many factors. For instance, you could reduce your home payments if downgrade from a large house to a one-bedroom condo. If your household has multiple cars, you could sell one and ditch the car payment and extra car insurance costs. It’s a good idea to plan now for what you need later. If you’d like to maintain your current living standards, try to make sure you’re contributing enough to cover those costs later in life. If you think you won’t have as many expenses in retirement, you’ll still need to save, but you can adjust your goals accordingly. Some retirement plans offer the chance to automatically increase your contributions by 1% every year. If yours doesn’t or you don’t want it to, still review your investments regularly regardless. Make sure you’re still on track to retire at your preferred retirement age and with enough money to last you through retirement, which, for some people, will be several decades. Rebalance your retirement portfolio whenever necessary. Try to be more aggressive with your account when you’re younger compared with when you’re closer to retirement age. That means having riskier investments in your 20s, 30s, and even 40s. That way, if the stock market plunges, you’ll have longer to recover from the drop. If you invest aggressively closer to retirement age, you may not recoup the losses fast enough. That could mean pushing retirement back until you’re older and finally have enough money to comfortably stop working. But retirement planning needs to be on your must-do list. Even little savings can go a long way. Continue to pay down your student loans or other debt whenever you can, but find a way to make contributions to your retirement account before it’s too late. Avoid taking out loans against your 401(k), too, unless it’s absolutely necessary. To avoid forgetting about your retirement savings, consider setting up recurring auto-contributions. This might come directly from your paycheck if you have a work-sponsored retirement account. If you have an IRA, you can set up auto-pay to add funds from your bank account to your retirement account every month. If you don’t want to commit to auto-contributions, consider adding a monthly calendar reminder to do this instead.
