Steps for retirement planning

Saving for retirement should start early and continue throughout your career.

Before taking steps toward retirement, it’s helpful to think of reaching your goals within each of the following categories:

• Saving for retirement
• Planning for retirement
• Using retirement accounts

In your late teens and early 20s, retirement is probably the last thing on your mind. If you’re lucky, you’ll get advice to start retirement accounts and put in the highest amount allowed.

If you have access to a 401(k), a retirement savings account offered through an employer, consider contributing and taking advantage of any company matching funds available. You can also invest in an individual retirement account (IRA), including a traditional IRA or Roth IRA. A traditional IRA generally uses pretax contributions, which may lower your taxable income today, but you’ll pay taxes when you withdraw the money in retirement. A Roth IRA uses after-tax contributions, so qualified withdrawals in retirement are tax-free.

Consider starting to save early. The earlier you start saving, the more your retirement savings can grow. In addition to building long-term savings habits, you may want to learn about what other investment options are available to you. Explore how your retirement savings can grow over time to help you reach your retirement goals.

When considering how much to save for retirement, common advice is to “save as much as you can.” However, that advice isn’t specific. You may find it helpful to take a practical method and set your retirement savings goals based on your future needs.

Consider creating a retirement budget based on your expected expenses and income. Account for inflation, which is the general price increase in goods and services over time, and how your spending needs may change over time. Retirees often plan for expenses that are 75% to 80% of their pre-retirement spending. But you may want to use your own expected expenses as a guide rather than relying on this general rule.

Although your expenses may go down in retirement, your income may also be reduced. Your total retirement income, including any money you think you might take from different savings accounts, can help you meet or exceed your expected expenses for as long as you are retired. If you anticipate that other sources of retirement income won’t cover your needs, you may need to increase your current retirement savings.

Compare your current taxable income with your expected retirement income. This can help you estimate your tax rate now and in retirement. Use these estimates to decide whether taxable or tax-deferred investments may help manage the amount you pay in taxes over your lifetime.

It’s also important to ask yourself the question: “When is the best time for me to retire?” The longer you wait to retire, the more yearly value you may get from retirement accounts, social security payments and other retirement income sources. If you plan to retire early, you may receive lower benefits and you’ll need to have more money in your retirement accounts to help make sure you don’t run out of savings. Need further support? Check with the Social Security Administration for retirement estimators and other resources.

A financial planner or online retirement calculator can help you create multiple what-if scenarios. Any gap you have in expenses minus annual income is the goal you may want to set for your annual retirement savings. Multiply this by the number of years you expect to be retired to calculate how much you may want to save for retirement.

Another retirement planning step is to figure out how you will use your retirement accounts for expenses.

• Notify the Social Security Administration of your plans.
• Prepare to withdraw required minimum distributions from retirement accounts. If you were born in 1960 or later, distributions are required to start at age 75. If you turned 72 in 2023 or later, distributions are required to start at age 73.
• Decide whether to withdraw first from taxable or tax-deferred accounts.
• Based on your decision in the previous step, create a long-term withdrawal strategy considering taxable, tax-deferred and tax-free accounts.
• Apply for Medicare.
• Consider additional funding plans for healthcare and long-term care.

Consider consulting a tax professional to discuss your specific financial situation.

Retirement planning is a journey that looks different for everyone. By saving regularly, understanding your options and checking in on your goals over time, you can build a plan that helps you feel more prepared for the future.

Remember:

• Starting with a 401(k) or IRA early in your career gives your savings more time to grow and benefit from compound earnings.
• Creating a retirement budget helps you get an idea of your future costs and how much you may want to save as your needs change.
• Understanding when to access retirement accounts, Social Security benefits and healthcare coverage can make the transition into retirement feel more manageable.

Building a strong financial future takes planning at every stage of life, from saving for retirement to making the most of the money you have today.

Where you keep your savings can be part of that plan. Consider opening a 360 CD account that offers a strong rate from day one, helping you earn more over time.