Retirement Planning: 3 Tips to Get Started

Even if you are not retiring in the near future, there’s no harm in creating a retirement a plan. Financial planners typically recommend that people start thinking about it as soon as humanly possible. Why?  Because of the magic of compound interest.  That’s why.  The earlier you start, the more money you’ll have because of the extra time that your nest egg has had to grow. 

Of course, this is easier said than done.  When I was in my 20′s, retirement planning was the furthest thing from my mind.  I was too busy making plans for the immediate future and not thinking about how things would be 20, 30, or 40 years from now.  However, now I am older and wiser.  I now realize that the future is here much sooner than we think.  With that being said, we had better start planning, right?

The sooner you start saving for retirement, the better off you’ll be once you leave the workforce. But, where do you start?

1. How much will you need? 

This is the hardest question to answer. It is difficult to predict how much income you will need in the next 30 or 40 years. However, several tools are available to help you estimate your retirement needs and save accordingly. A retirement savings calculator is one of the best tools to jump start your retirement savings plan. These calculators take into consideration how much you have and how much you will save, in addition to factoring in inflation.  With the help of a calculator, you can get a rough estimate of what it will take to maintain your standard of living.

2. Diversify your savings. 

You shouldn’t rely on a single retirement savings plan. There are several ways to invest your money, and by diversifying your plans, you can maximize your retirement income.

A regular savings account and money market account are excellent ways to keep some of your cash in a liquid state. However, these accounts generally do not offer the highest interest rates. Make sure you explore any and all other savings options that are available to you. For example, if your employer offers 401(k) accounts, enroll in a plan (if eligible) and begin contributing money toward your retirement as soon as you can sign up. You can also look into self-funded retirement accounts, such as IRAs. And if you’re feeling brave, consider riskier investments, such as stocks and bonds.

3. Pay off debt.

Debt is always a huge pain in the ass.  This is especially true when you’re getting close to retirement. As a matter of fact, depending on how much you owe, you may have to delay retirement to continue paying off your stuff.

Do you have a mortgage? If so, look into different ways to pay off your home loan before retiring.  I personally advocate paying off your mortgage as soon as humanly possible.  This is, of course, after you’re saving for retirement and other goals and have a fully funded emergency fund.  I honestly can’t believe that anyone would want to pay on their home for thirty freakin’ years!

Of course, debt repayment doesn’t only apply to your mortgage loan. It applies to everything else that you’re making payments on.  In short, the sooner you pay everything off, the better off you’ll be.

The retirement years can sneak up quickly, and if you don’t plan early, you may work longer than expected. Since I don’t want to be a greeter at Walmart in my 70′s, I’ve started taking retirement planning seriously.

What about you?  Are you saving for retirement?

 

 
About Holly

Holly Johnson is a wife, mother of two, and frugal lifestyle enthusiast. She is the co-founder of Club Thrifty and a staff writer at Get Rich Slowly, Frugal Travel Guy, and U.S. News and World Report's "My Money Blog." Holly has been featured in the Wall Street Journal, Kiplinger Personal Finance, Fox Business, and Daily Finance.

Comments

  1. Some good tips here on getting started. An additional benefit to starting early is that you’ll actually have to save less. And I would add that it’s important to keep things simple. Find 1-3 good index funds and stick with them. I would also add that it’s often just as risky to avoid stocks as it is to use them, particularly if you’re young.
    Matt Becker recently posted..How to Beat 80% of Investors With 1% of the EffortMy Profile

  2. Aw come on, you’d be a great Walmart greeter when you are in your 70s! How could you NOT want to spend your time doing that? :P These are good tips, Holly, and I appreciate your advocacy of paying off your mortgage quicker than 30 years. I think if you had your mortgage paid off you also wouldn’t be as stressed out when selling the house since it would all be money in the bank versus each $10k you have to sell lower than list price being excruciating.
    DC @ Young Adult Money recently posted..The Spender and The SaverMy Profile

  3. Great tips Holly! Like Matt said, you also get the additional benefit of starting earlier – you generally have to put away less. Of course, I was a complete doofus and did not start early, but thankfully I’ve learned from that. I have no plans at all of being a Wal-Mart greeter…I think I’d get fired in a day! ;)
    John S @ Frugal Rules recently posted..How to Become Rich the Right WayMy Profile

  4. This is great advice! Generally speaking, I think people underestimate the amount of money they will need in retirement. In many ways retirees spend less, but this savings is offset by the increasing costs of medical care. A couple years stay in a nursing home can dramatically eat away at one’s life savings. Anymore we have to think even longer term, that we might live to be 90-100. That means we should prepare to support ourselves for 20-30 years after we retire. That’s a daunting proposition.
    Brian @ Luke1428 recently posted..Investing Made Easy (Part IV) – How to Pick a Good Mutual FundMy Profile

  5. I am still dealing with debt in my late 40s and that keeps my retirement savings to a minimum. I do take advantage of my employers pension match. I have dividend paying stocks in a personal savings account and I will not be taxed on any earnings (TFSA) and a mutual fund in an RRSP.

    I will NOT be a Walmart greeter but will be the person who picks up the trays and wipes the tables at McDonalds. At McDonalds you get a free meal on every shift so I will be getting paid and getting one of my meals free every time I work.
    Jane Savers @ Solving The Money Puzzle recently posted..Mortgage Versus HELOC – The Winner Is…..My Profile

  6. But the Walmart greeter is such a friendly person….

    Great news for people starting late….it’s never too late to begin. Start now! Do it! Stop reading this comment! I dare you!
    AverageJoe recently posted..Is It Time To Fire Your Advisor?My Profile

  7. We are definitely saving for retirement. I want it to happen sooner rather than way later in life :)
    Michelle recently posted..My Student Loans are GONEMy Profile

  8. You’re right time goes by so quickly retirement years will be here before we know it! I haven’t started saving for retirement yet. But as soon as I finish my emergency fund it will be a top priority.
    Alexa recently posted..Planning for Christmas in July (and Mission Unspoiling)My Profile

  9. Marvy article, man. Just took a peek at my Vanguard IRA and boy am I glad I started contributing in 1999. The recent spike in the market made a much bigger impact on my account than if I began contributing last year. Of course, it would have even been better had I started contributing when I was 25 than when I was 29, but at this rate, I will not have too many regrets!

    And we are hammering away at all debts. 2 biggies were slayed in 2013. 2 left to kill. Have a blaster of a Wednesday!
    cj recently posted..Why I No Longer Eat CheeseburgersMy Profile

  10. It’s something that got put on the back burner when I became a freelancer and money was tight, but it’s something I need to take a lot more seriously now. I have a lot of catching up to to.
    Budget and the Beach recently posted..My BudgetMy Profile

  11. I make savings a priority and set up a payroll deduction for my 403B, IRA and Roth IRA. It simplifies my fie and I live on what is left.
    krantcents recently posted..Top Secrets to Make Recruiters Find YouMy Profile

  12. We have a lot of the same approaches to mortgage debt and savings, it seems. Thanks for posting some advice about planning & saving for retirement as early as possible. Like a lot of others have noted, it would have been great to start earlier. But that’s the past and all we can do now is work on the present!
    Done by Forty recently posted..When it’s Hot, Go SlowMy Profile

  13. Great advice! Having a plan helped us a lot. It makes it very easy to understand the benefits of saving earlier in life.

    It’s also fun to tweak the plan with a higher savings rate or increased income. It’s awesome to see the FI/ER date move closer!
    GamingYourFinances recently posted..My life after early retirementMy Profile

  14. Nick @ AYoungPro.com says:

    Great tips! My favorite tip is to just START saving. You don’t have to be an expert right away. A lot of people get caught up in the fact that they don’t know how to do something well, when in reality you learn to do things well just by doing them!
    Nick @ AYoungPro.com recently posted..Perspective and The Need For an Emergency FundMy Profile

  15. I agree about starting as early as humanly possible – it’s amazing how I view retirement now than just a decade ago, especially with how the years just go by. That’s definitely something I’ve ingrained with the younger folks where I work.
    anna recently posted..Wedding Stuff Part 1: Church CeremonyMy Profile

  16. I agree with Nick, start as soon as possible. When I worked in financial services I could drag young adults into saving for their retirement. If only they knew how much they could have by saving now.
    Chris @ Stumble Forward recently posted..June 2013 Budget UpdateMy Profile

  17. Our Walmart no longer even has a greeter!

    We started late on saving for retirement….because we wanted our kids to graduate debt free from college. Now we ARE retired and doing very nicely.

  18. Great tips, Holly. It’s one of those unfortunate truths where we would all be better off if we started saving in our 20′s when we are the least likely to start saving! :) So many people delay starting their retirement (or any goal) savings because they think it’s so far away. It comes a lot faster than you think! I also think people make the mistake of thinking they need X amount of money without actually determining whether they do based on what they want to do.
    Shannon @ The Heavy Purse recently posted..How to Integrate Debt Conversations into Everyday ActivitiesMy Profile

    • Yep, so many pitfalls! I’m not sure how much I’ll need though. It’s hard to tell when you don’t even know when you’ll retire. Maybe I’ll know when I get there?

  19. These are great tips! I love receiving my retirement statements each quarter. There is an insert with a table that says, “if you save xx more per moth, your monthly retirement payment will increase by yyy.” it’s a great motivator.
    JW_Umbrella Treasury recently posted..Mortgage Affordability: What the Lenders Tell You vs. What You Should Really SpendMy Profile

  20. It’s the “how much will you need” question that always gets me! :)
    cat recently posted..Potato omeletMy Profile

  21. I’m 24 and I already feel like I’m behind on planning for retirement. I wish I would’ve started saving when I was like 16. I know that wasn’t really possible, but the impact of compound interest is incredible when you add a few years onto 20, 30 or 40. I know the majority of my friends aren’t even contemplating retirement yet so it’s pretty common. Although, it’s tough to start saving when you have student loan debt and are making very little.
    Jake @ Common Cents Wealth recently posted..We’re Debt FREE!!My Profile

  22. I’m putting a measly 6% gross away right now, but with a 35% match. Once I build some margin in my budget and kill the student loans, I’ll be upping my retirement contributions. I’m also going to take half of that extra cash and direct it toward paying down the house quicker. Figure I’d be diversified that way. 6% away in pre-tax savings (with match), some cash in post-tax-tax-free savings (Roth IRA), and another chunk in physical real estate. Balanced!
    Jacob @ iHeartBudgets recently posted..How I Avoided Wasting Money On A Bad Used CarMy Profile

  23. Great article and good advice! I’m currently trying to work on #2, trying to figure out who all the players and products are investment-wise and then coming up with a plan from there. It’s a lot to go through!
    Roger@lifelaidout recently posted..I’ve Got This Burning Feeling…My Profile

  24. Excellent tips on getting started. It’s really quite frightening how few people are fully prepared for retirement!
    Alex @ Searching for Happy recently posted..How would you define your view on life?My Profile

  25. We are both saving for our retirement. We have a mix of employer RRSP plans, personal RRSPs, TFSAs and cash savings. I’ve done some hand-wavey calculations about how much I need, but in general, I figure more is better. :)
    CF recently posted..Recipe Idea: Lime and Salsa Pork ChopsMy Profile

  26. As soon as I hit 30 the word retirement was all around me and I was just enjoying my life lol. It’s now a central part of our personal finances and we have been saving, yes. Through real estate, pensions, and investments we hope that we are on the right path towards having a comfortable retirement although we realize that at any point in time, things could change.
    Canadianbudgetbinder recently posted..June 2013 net worth update: Everything is not lost (+0.09%)My Profile

  27. Paying off debt can give you more room to save. I am hesitant to retire if I have financial obligation from my creditors. Hopefully I can pay off my home mortgage next year in order to speed up our retirement journey.
    Walt@MyWealthDesire recently posted..How to Get Debt Free LifeMy Profile

  28. I’m in my mid twenties and I have a retirement plan. I think that your’e never too young to start. It’s important to plan for the future!
    Daisy @ Prairie Eco Thrifter recently posted..How Mindfulness Can Improve Your LifeMy Profile

  29. I agree with the peeps before – you’re never too young to start. I think we’re in pretty good shape for our age, but my older brothers worry me. I don’t think they’re going to be in good shape in 30ish years and when my parents aren’t around to help them out anymore I’m not sure what’ll happen. At least we can plan to do as well as we can for ourselves, so hopefully we’ll be in a position to help them out if necessary.
    Mr. Bonner recently posted..Beach house vacationMy Profile

  30. I actually started my retirement plans right after I started earning. It was just a small amount at first, but I believe it was a good start.
    Felix Lee recently posted..Help with Setting up a BusinessMy Profile

  31. I just got started with my retirement planning this year – I think because I was drowning in out of control debt until just a few years ago. Now that I feel more in control of what’s happening financially, it’s freed up my brain for bigger plans. Thanks for these tips, Holly!
    Lindsey @ Cents & Sensibility recently posted..Weekly Review: July 8 – 14My Profile

  32. Great Article. . I waited too long with thinking about how not having enough money will really affect me in my retirement years. Just lately I found a retirement planner at http://www.swretire.com/ who is trying to help me figure out the best thing for me to do to be able to have money in my golden years. I almost waited too long but he has some great ideas and plans to get me on track. I worked for 15 years without a 401 then i got a job that had that option and i took advantage of it and i am scrambling to make up for lost time.

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