Retirement Planning 101

Retirement Planning 101: Your Step-by-Step Guide to Future Savings

In principle, saving for retirement seems like a good idea, but it isn't always simple in practice. According to a 2019 TD Ameritrade survey, the majority of people between the ages of 40 and 60 had less than $100,000 saved for retirement. In the same study, over 60% of respondents stated they feel $1 million will last them into retirement.

However, if the majority of employees who aren't far from retirement have only $100,000 saved, they won't be able to meet the $1 million target by the time they reach 65 or even 75, even with aggressive contributions and investments. That implies they'll have to work far into retirement to prevent running out of money.

If you want to downshift and have a typical retirement rather than working until you die, you must take action right now. Here's how to get started or get back on track with retirement planning.

Start Saving Early

Whether you're starting your first job out of college or have been in the field for a while, look into the retirement plans offered by your company. Look for options like

• Pension

As soon as you are able, enroll in a retirement plan. The sooner you begin to take advantage of this perk, the more money you will begin to save.

For example, if you save $50 every month (at the start of each month) and expect a 6% annual return, you'll have $3,489 after 5 years, $14,614 after 15 years, and $23,218 after 20 years. If you save $500 every month for 20 years, you will have $232,176.

If you start saving when you're 25, rather than when you're 35, your account will benefit from larger compound growth since you'll have a head start.

Find the Right Retirement Account

Your employer may provide one or a few different retirement accounts, or it may not provide any at all.

If your employer doesn’t offer a work-sponsored retirement account, open a retirement account with a bank or credit union that provides retirement savings accounts, or a permanent life insurance policy. These are good options, 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.

Know Your Retirement Goal

Your expenses in retirement may differ from those you have when working. But that doesn't mean you won't have any expenses. To cover yourself in retirement, you'll probably need between 70% and 90% of your present income.

This might alter based on a variety of circumstances. For example, you may lower your mortgage payments by downsizing from a large house to a one-bedroom condo. If your family has numerous vehicles, you might sell one to eliminate the car payment and extra insurance costs.

It's a good idea to plan ahead of time for what you'll need later. If you want to keep your present quality of living, be sure you're contributing enough to pay those expenditures later in life. If you believe you will have less costs in retirement, you will still need to save, but your objectives can be adjusted accordingly.

Don’t Forget About NIC Retirement/ Age pension

NIC age pension is a monthly allowance payable for life to an insured person who satisfies certain qualifying conditions.

The age pension rate is 40% of the covered person's average pensionable earnings during the best 5 years of contributions, plus 0.1% for each month over 180 months.

If a person has contributed for fewer than 180 months, he or she is eligible for an age grant.

NIC is only one portion of your retirement income. It’s important not to rely solely on this income source during retirement. Instead, save as if you don’t expect it. That way it’s an added bonus if you do get a NIC payout later.

Check in on Your Savings Every Year

Even while retirement plans are low-maintenance, they nevertheless require your attention. At least once a year, check up on them. Are you making the most of your contributions? Is your employer matching your contributions?

Some retirement plans allow you to automatically raise your contributions by 1% each year. If yours does not, or if you do not want it to, you should still evaluate your assets on a regular basis. Check to see whether you're still on schedule to retire at your targeted retirement age and with enough money to sustain you into retirement, which might last many decades for some individuals. When required, rebalance your retirement portfolio.

When you're younger, try to be more aggressive with your account than when you're nearing retirement age. That implies making riskier investments in your twenties, thirties, and even forties. That way, if the stock market falls, you'll have more time to recover. If you invest aggressively closer to retirement, you may not be able to recoup your losses quickly enough. That might mean deferring retirement until you're older and have saved enough money to retire comfortably.

Make Your Retirement a Priority

With so many demands on your money, it's easy to drop retirement down the priority list. After all, if you're not near to retirement age, it's usually not on your radar.

However, retirement preparation should be on your to-do list. Even little sums of money may go a long way. Continue to pay off your school loans or other debt as much as possible, but find a means to contribute to your retirement account before it's too late. 

Consider setting up recurring auto-contributions to prevent forgetting about your retirement funds. If you have a work-sponsored retirement account, this might be deducted immediately from your paycheck. If you have a personal retirement account, you may set up auto-pay to transfer cash from your bank account to your retirement account on a monthly basis. If you don't want to commit to auto-contributions, try setting up a monthly calendar reminder instead.

Key Takeaways

• Begin saving as soon as you have access to a retirement account, whether via your employer or through your own personal retirement account.

• Make a goal for yourself to guarantee you're saving enough to live the lifestyle you desire in retirement.

• NIC may also be available, but it’s important not to rely solely on that money for your retirement.

• Check in on your retirement account at least once a year and make any necessary modifications to help you stay on pace.