Strategies for Planning Your Retirement

Retirement as a concept has only been around since the 1930s, when Social Security was first enacted to allow all people to stop working at age 65. But people live much longer lives now than they did in the 1930s, so you’ll need to save enough money to cover your needs for longer.

Start with the idea that you’ll live to age 90 or even 100, set your goals accordingly, and you won’t have to worry about outliving your money.

Speaking of Social Security, it’s changed since it was established. Given rising housing and healthcare costs, many people would find it difficult to live comfortably on their Social Security checks alone. Also, the laws around retirement age and benefits could change by the time you retire.

When planning, consider Social Security a helpful start, but not the full retirement income you need.

Time is on your side when it comes to growing your wealth, so the time to start saving for retirement is now. That’s because time allows for the magic of compound interest. In this scenario, your investments earn interest, and then that interest continues to earn interest. Leave all the earnings and interest in the account to grow your savings.

The lesson? Invest now, keep at it, and never withdraw your money if you can, to take full advantage of compound interest.

The power of compounding interest comes from making regular deposits over time: slow and steady wins the race here! Automatic contributions, whether through payroll or set up as a monthly transfer from your checking account, keep you on track to meet your goals. Best of all, having the money leave your hands immediately helps you forget about it, so you won’t be tempted to spend it—and you won’t miss it.

Have your retirement savings come out of your check first, and build the rest of your budget around what you have left.

If your employer offers a 401(k) or 403(b) plan, use it! These retirement plans take contributions from your paycheck pre-tax, so you lower the amount of taxes you have to pay right now. They also allow earnings and dividends on your investments to grow tax-free, so you get to keep more of your money.

If you don’t have an employer-sponsored plan, you can open your own IRA at your bank to get the same benefits.

There’s another type of retirement plan available from your employer or local bank to consider. The Roth plan also lets your earnings grow tax-free, but you fund this account with after-tax dollars. That means you won’t lower your tax bill this year, but you’ll never pay taxes on this money again, which helps you keep your taxes lower once you’re retired.

Splitting your savings between a traditional and a Roth plan allows for more flexibility once you retire, so consider using both.

Many employers offer matching funds as part of their benefits package. This means they promise to “match” your 401(k) investment up to a certain percentage of your salary. For example, a 3% match means that you must contribute 3 percent of your pay to your 401(k) to get the company to invest another 3% for you.

This is free money, so always invest at least as much to get your full match if it’s available to you.

You can turbo-charge your retirement savings by increasing your contributions every year. If you get a raise, take some or all of the extra income and use it to bump up your automatic savings. Or, increase your contributions by 1% of your pay each year.

This is small enough to keep your budget from feeling pinched, but over time you will increase your savings rate to 10, 15, or even 20% of your income—the amounts experts recommend for a comfortable retirement.

Retirement planning isn’t only about amassing wealth. You also need to consider what you want your life to look like when you stop working. Will you live with family, or have family live with you? Will you travel, or need medical care? Having a solid vision of where and how you want to live will help you make decisions that support that vision, such as whether to purchase long-term care insurance or downsize to an apartment.

Many people find that they are actually unhappy in retirement because they aren’t sure what to do with their time. Without work, they feel like their life has no purpose. To avoid feeling lost, keep nurturing your hobbies and interests throughout your working life. What would you devote your time to if you could?

Set goals for what you want to accomplish, including learning, skill-building, charitable giving, and anything else that gets you excited about life.