If the title of this article grabbed your attention, we’ll assume you’re at least a few years or even decades into your career, and retirement (along with all of its accompanying worries) is inching closer. No matter where you are in your journey, there is one commonality – it is never too soon to start preparing for your life post-work.

Many people procrastinate their retirement planning because they have no idea where to start or retirement seems so distant that they feel like they have ample time to get started. But ask anyone who has passed their age 67 milestone and they will tell you that the years breeze by rather quickly. The old saying that “time is money” is often true when it comes to planning your retirement.

Whether your first paycheck is a crisp recent memory or a distant foggy recollection, here are five things you may want to consider for a happier and more financially secure retirement:

  1. Determine what retirement will look like for you and calculate how much you will need to fund it. Predicting what next week will bring is difficult, much less retirement, but with a goal in mind, staying on track with your retirement savings is more likely to happen. When creating a mental picture of your retirement life, ask yourself the following:
  • Where do I plan on living?
  • Will I split my time between cities?
  • Will I upgrade or downsize my housing?
  • How often do I plan on traveling?
  • Do I plan on working during retirement?
  • At what age will I ideally retire and realistically how long do I think I will be retired?
  • Everything considered, what will my monthly budget be?

Once you arrive at an annual retirement budget, multiply that by your predicted number of years in retirement and you will arrive at the amount you will need to have saved by the time of your retirement. A common rule of thumb is that an average retiree will need about 80% of their pre-retirement income per year. On average, most retirees will spend about 20 years in retirement, but it is best to err on the side of caution, and plan for 25 years or more of retirement funds. Try out this online retirement calculator for a snapshot of what your retirement finances may look like.

  1. Contribute to your employer-sponsored plan. For many people, their 401(k) is their primary vehicle for retirement investments. Automate your contributions based on a percentage of your salary rather than dollar amounts, so the amount of your contributions automatically increase with increases in your salary. Most importantly, if your employer offers a matching contribution, make full use of it, otherwise you are leaving “free money” on the table. For those that might feel intimidated by the whole prospect of choosing investments and allocating correctly, many 401(k) administrators offer the option of target date funds, which provide a mix of investments based on your expected retirement date and automatically adjust allocations with time (from more risk to less). And if your retirement plan provides the opportunity to discuss your retirement savings plan with a financial advisor or counselor, it might be worth reviewing your plan with him or her to see if they have any professional guidance that might be of help.
  2. Open an individual retirement account (IRA) For those without an employer sponsored 401(k) or who just want to add another savings vehicle for their retirement, an IRA may be a good option. An IRA is a common retirement savings account held through an independent third-party custodian that may offer unique tax incentives. There are generally two types of IRAs: traditional and Roth.

A traditional IRA may allow for an income tax deduction (potentially reducing your current income tax) based on the contributions you make. Your money then grows tax-deferred, meaning you don’t pay taxes on the earnings or your contribution until you begin receiving distributions in retirement.

With a Roth IRA, there are no income tax deductions for your contributions as after-tax money is used to fund the account. However, your money grows tax-free; you will not be required to pay income taxes on it upon withdrawal in retirement if you satisfy all requirements. If your tax bracket is likely to be lower at the time of the investment than at the time of the distribution, Roth IRAs may be more attractive to you, if you are eligible to invest in a Roth IRA, because you will pay applicable taxes at your current, lower tax bracket. 

  1. Capitalize on catch-up contributions. If the general “the sooner you start, the better” retirement advice was a little late getting to you, you can still make up for the delay. If you are over age 50, you may have the opportunity to contribute more to your 401(k) or IRA than those below that milestone age. For 2022, IRA catch-up contributions allow for an additional $1,000 contribution over the base $6,000 limit; for 401(k)s the contribution limit is $20,500 plus an additional $6,500 for those over 50.
  2. Don’t touch the money. Saving for retirement is a long-term commitment, and despite unforeseen hardships that may come your way, dipping into those savings should be the ultimate last resort. In most cases, you may face a flurry of penalties and taxes that will dramatically eat away at what you have saved. 

Being proactive about saving for retirement may provide you with a more secure and stress-free future. The younger you start, the easier it will be to reach your retirement goals. But even if you have been avoiding retirement preparation, it is not too late to start. For most, working until you’re 80 and making drastic lifestyle changes doesn’t sound like the type of future anyone had planned on when they started their first job. No matter how far from or close to retirement you are, consult your financial advisor to help you put together a retirement plan or assess how on-track you are with your financial goals.

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