Saving for your retirement will likely be the largest financial priority of your life. While it will take decades to go from having no savings to having sufficient funds socked away to cover your costs in your golden years, the process of saving for your retirement can be quite straightforward. This 12-step checklist can get you well on your way toward building enough of a nest egg to enable a comfortable retirement.
1. Write down your current age
The most important asset you have when you’re saving for retirement is your time. The longer you have to save for your retirement, the less you have to sock away, and the easier it is to get there comfortably. Your age today is key to understanding how much time you will be able to put toward your plan.
2. Write down the age you expect to be when you retire
When planning for your retirement, understand that there’s more involved than just you picking a date. Be sure to consider the ages at which your coworkers tend to stop working, your employer’s policies for encouraging retirement, any mandatory retirement age, your health conditions, and the physical and mental stresses that work takes on you. You may want to work until you drop, but unless you take steps to get yourself a job that you can keep forever, retirement may find you sooner than you’d like.
3. Figure out how long you have to save
Subtract your current age from the age you expect to be when you retire. That lets you know how long you have left to get your plan, and your full nest egg, in place.
4. Estimate how long your retirement will last
The key number involved that you haven’t already estimated is the age you expect to pass away. It’s something you can’t know to a certainty, but between your own health conditions, your family history, and a life expectancy table, you can probably come up with a reasonable estimate. To be more conservative in your planning, add a few years to what you estimate after looking at those known factors. It’s better to leave money behind for your heirs than to wind up broke with years of life ahead of you, and no way to earn the money you need.
5. Calculate your annual budget in retirement
Most people find that their expenses drop in retirement. They’ve paid off their homes, their kids are grown and supporting themselves, and they no longer having to cover the costs and taxes associated with working. On the other side of the equation, higher healthcare costs and the expenses of paying for help with everyday tasks you used to be able to handle on your own can offset those savings, particularly later in your retirement. Many experts suggest using a number between 60% and 80% of your pre-retirement incomeas a starting point to calculate what you’ll spend, but you should adjust that based on your own circumstances.