“Can you tell me if I’m on track for retirement?”
This was the most common financial question I received when I used to lead retirement seminars for people ages 50+. In fact, I still hear this question all the time — particularly from people in their 20s and 30s. Here’s the truth: Retirement is more personal than it is financial, and the amount you need is personal as well. That’s why it’s best to make preparing for retirement a life-long process.
If retiring in your mid-60s is the goal, taking these steps can help you stay on track:
In Your 20s: When you’re just starting out in your career, the focus should be on putting money into your retirement account and meeting any employer match that’s available to you. I realize you may have a lot of other things on your financial plate right now, like establishing an emergency fund, repaying debt, saving up for a home. But the best thing you can do in the early days of your career is create a “set it and forget it” mindset for retirement savings. Normalize saving a percentage of your income. If you do this before you ever see your first paycheck, you won’t miss the money.
Tip: Fidelity recommends saving 15% of your pre-tax income toward retirement — this includes the amounts both you and your employer are putting in. If you’re able, shoot for that amount right off the bat. If not, meet the match your employer offers (if any) and commit to increasing your contribution by 1-2% per year until you total 15%. NOTE: This is a rule of thumb. Depending on the retirement you envision, you may need more or less, but it’s a good rule to get you started.
In Your 30s: Take stock of how close you are to the 15% goal. If you’re at 15%, see if you can grow beyond it to maximize the power of time. If you’re not there yet, determine what it would take to expedite the process. This is also a great time to check in with another Fidelity rule of thumb: saving 1x your current income by age 30 and 3x by age 40. Again, depending on your retirement vision, you may need more or less, but these rules of thumb can be helpful guides when retirement feels so far away.
Tip: If you have a high deductible health plan, you may also want to consider putting more money away into your HSA to use for health care expenses in retirement since HSAs come with a triple tax benefit: the money goes into the account pre-tax, grows tax free, and will not be taxed when it’s taken out for qualified medical expenses.
In Your 40s: Now is a great time to start personalizing your retirement goals to your specific situation. Will you need more, less, or the same amount of income as today to make your vision of retirement possible? You might need less if you’re planning to downsize, move to a place with a lower cost of living, or focus on relationships and inexpensive hobbies. You might need more if you’re planning to move somewhere with a higher cost of living or travel extensively. If your retirement account provider has a tracker that projects the amount of money you’ll need to retire, begin to use it (if you haven’t already). Or, try out this one from Bankrate.
Tip: Consider the various income sources you (and your partner) will draw on in retirement: Social Security, workplace retirement accounts, pensions, IRAs, other investments, part-time work. Get to know how these different income sources will be taxed. If you can, consider diversifying your income sources, so there are some that will be subject to tax and others that will not.
In Your 50s: It’s time to get serious about what your retirement will look like, make a budget, and chart a plan. Before jumping to the numbers, do a little dreaming: What would your ideal day be like? What goals do you have? How will you spend your time? Do you plan to move? Be in conversation with your partner to see how your visions align. Once you have a clearer vision, this retirement planning guide from CNBC can be really helpful. If you aren’t already working with a financial planner, you’ll want to take that step now. If you’re feeling confident, a financial planner can help you make sure you really are as on track as you think. If you’re feeling a bit lost, a financial planner can help you make your retirement budget, put all of the pieces together, and create a plan you can act on.
Tip: Starting the conversation with a retirement planner at least 10 years out before retirement will give you the latitude to make any needed changes before your retirement date. Don’t have a financial planner already? Check to see if there is someone who you can work with through one of your retirement account providers. If there’s not, consider a fee-only Certified Financial Planner (CFP).In Your 60s: Those who start retirement planning early can use these years to dot the “i”s and cross the “t”s so they can retire with confidence. Keep in close contact with your financial planner and your partner — especially if things (like your timeline or the stock market) shift and change. This is also a good time to consider when you want to start taking Social Security. While that decision may seem fairly straightforward, there are a lot of factors that come into play, especially if you’re planning with a spouse. This Investopedia guide can help you get informed before weighing your options with your financial planner.
Tip: You’ll also want to be in contact with Medicare (if you’re eligible) to ensure you have the health insurance you need in retirement. Learn more on Medicare’s website.