Saving for Retirement: All the Basics 

It might seem like retirement isn’t possible for you. You’ve seen the numbers and the reports saying you should have at least one or two million dollars saved when you retire. Those are big numbers and it can feel like saving for retirement isn’t something feasible for your situation.

It’s easy to feel overwhelmed. However, don’t let the stories scare you. Saving for retirement is something that only the chosen few get an opportunity to achieve. It’s possible for just about everyone. 

Not sure where to start? Here are some of the basics that everyone should know. 

Determine How Much You’ll Need

You’ve probably read countless news stories and heard from so many different advisors who all have their own ideas about how much you’ll need to have saved for retirement. It’s important to remember that these numbers are all guidelines or estimates for the overall population. They’re not necessarily reflective of what you’ll need.

To help you figure out what you need, consider the lifestyle you want. Do you have costly hobbies you’d like to do? Are you planning to travel? What will your living expenses be like?

Retirement is much different for someone who will have a mortgage or other loans to pay down when compared with someone who has their housing paid off, for example.

It’s also important to think of the logistics of your retirement. At what age do you hope to retire? When you do retire, will you stay in the house you’re in now or will you be downsizing? If you’re moving, will it be to the same city or town, or are you planning to live somewhere else? 

Once you know all these details, think about how your expenses will change when you retire and come up with an estimated budget. Be sure to account for inflation and health care costs, which will probably both increase over time. 

If you can estimate how much you’ll spend in an average year in retirement, you’ll be able to get an idea of how much you’ll need overall. 

Know What You’ll Get from Other Areas

Saving for retirement doesn’t mean that you’ll have to raise all the money yourself. For a lot of people, Social Security benefits can cover at least a portion of your income. You may also have an employer pension plan. Sometimes employers will contribute a percentage of the amount you contribute to this plan. That can be a great way to increase your retirement savings.

Starting Early Matters

Simply put, the earlier you start saving for retirement, the better. That’s because interest compounds over time. If you start early, you’ll have to put aside less each month than if you start later in life. 

Not only will you need to save less monthly, but you’ll be giving your money more time to grow, so there’s a good chance you’ll actually have more available when it’s time to stop working. 

Where to Invest

Having an investment strategy means a lot. In most cases, that means balancing preserving the money you have with income generations. In general, riskier investments offer greater potential returns, but they also provide less stability. These investments may be an option when you’re younger and have more time to save before you retire. Your strategy should change as you get closer to retirement age, however.

As you age, you’ll want to shift your savings to lower-risk investments that focus on protecting what you have more than they focus on growth. Some investments and retirement plans offer this automatically.

There are a lot of places to invest retirement savings, from bonds and sticks to Roth IRAs and traditional 401(k)s. Most financial planners recommend a diversified mix. However, speaking to a professional about what’s best for your situation and your risk profile is important.

Have a Plan and Stick to It

Wherever you choose to invest, it helps to be consistent with it. Investing regularly helps you build up your savings over time. Create a budget that includes a retirement savings category and make sure you “pay” this amount like you pay any other bill. 

Consider a plan where a certain amount is automatically moved from your bank account to your retirement account whenever you get paid, for instance. When it happens without you needing to do anything, the process is a lot easier.

Resist the temptation to dip into your retirement savings to pay down debt or afford expenses. Doing so can set you back a fair deal and make it harder to be comfortable in retirement.