Preparing for retirement doesn’t have to be difficult or complex. Even if you don’t have a detailed plan for retirement in place, taking small steps can make a big difference as you approach retirement.
Here are 20 steps to take now to prepare for retirement:
1. Shake off financial fear.
2. Make a quick start.
3. Pay off debt if able.
4. Contribute to a 401(k) plan.
5. Check the employer match for a 401(k) plan.
6. Use the auto-escalation feature.
7. Envision a retirement lifestyle.
8. Calculate your net worth.
9. Grow your net worth.
10. Think about working longer.
11. Consider retirement side jobs.
12. Create a Social Security account.
13. Download an app.
14. Read a money book.
15. Set up a will.
16. Follow a budget.
17. Make planning a habit.
18. Talk to retirees.
19. Start an IRA.
20. Follow a financial blog.
[READ: The Best Retirement Planning Books For 2023]
1. Shake Off Financial Fear
Instead of avoiding money-related tasks, face your financial reality. Take a close look at your monthly expenses and compare them to the income you regularly bring in. Understanding your full financial picture can help you determine how much to put toward retirement regularly.
2. Make a Quick Start
Decide on a certain amount to save each month, such as $50 from each paycheck. Put money aside before you spend it on bills, groceries or online shopping.
3. Pay Off Debt if Able
Start by reviewing everything you owe, from credit card balances to a home mortgage. Then think about ways to pay off the debt, such as putting an extra $100 toward a loan payment each month until the balance is zero.
“It’s typically advisable to enter retirement debt-free if possible,” says James Carlson, a financial planner at Carlson Planning Company in Mansfield, Massachusetts. “Minimizing financial obligations can significantly decrease the income you need to live comfortable in retirement.”
4. Contribute to a 401(k) Plan
If your employer offers a 401(k) plan, you can ask to have funds automatically taken from your paycheck and placed into the account. You’ll save without having to think about it each month.
5. Check the Employer Match for a 401(k) Plan
Some companies offer to match a portion of the funds you contribute to a 401(k) plan each year. Ask if a match is available, and then make sure your contribution rate is enough to capture the free funds.
6. Use the Auto-Escalation Feature
Some retirement plans offer an auto-escalate option that will boost the amount you save for retirement over time. It might increase by 1% each year for a set period or follow a different policy established by the company.
[READ: Essential Sources of Retirement Income]
7. Envision a Retirement Lifestyle
Think about how you want your next stage to look. You might have plans to travel, interest in starting a new hobby or a desire to spend your winters in a warm climate. “The lifestyle you choose will significantly influence your financial needs,” Carlson says.
8. Calculate Your Net Worth
Add up everything you own, including your house, car, cash and investments. Then subtract all that you owe, such as your mortgage, other loans and outstanding debt. The result will be your net worth, which can help you understand where you stand financially. Online calculators make it easy to calculate your net worth.
9. Grow Your Net Worth
Once you know your net worth, think about ways to increase it. You might make one small change, such as setting aside more in savings each month, to boost your wealth. Before stepping away from work, “you want to confirm that you’ve saved enough to retire and have an adequate buffer to handle changes in inflation, the markets or taxes,” says David Edmisten, founder of Next Phase Financial Planning in Prescott, Arizona. “You want to make sure you won’t run out of money in retirement.”
10. Think About Working Longer
If you’re close to retirement, consider the difference that staying employed and bringing in income for another year could make. You might be able to save more or pay off your mortgage, which could lead to more available funds in retirement.
11. Consider Retirement Side Jobs
In addition to saving, you may be interested in working part time to increase your retirement income and stay active. If you want to be at home, search for remote jobs so you don’t have to travel or commute.
12. Create a Social Security Account
You can set up a my Social Security online account at the Social Security Administration website. The tool will help you see what you can expect to receive when you claim. If you apply for benefits at age 62, which you are allowed to do, you’ll get a lower amount every month than you will if you wait until you reach your full retirement age or later. “The right time to start claiming Social Security benefits depends on many factors in your life and in your financial plan,” says Jeff Bernier, president and wealth advisor at TandemGrowth Financial Advisors LLC in Alpharetta, Georgia.
[See: 10 Strategies to Maximize Social Security.]
13. Download an App
There are many free financial apps that can help you pay off debt, track your spending or increase your savings. Search for an app that aligns with your goals, and then use it consistently. You’ll grow your knowledge of money and how it can be used to prepare for the future.
14. Read a Money Book
Increasing your financial knowledge may make it easier to keep your personal finances on track. Pick up a book about investing and discuss it with your household to see what lessons can be applied to your budget.
15. Set Up a Will
If you don’t already have one, some websites make it easy to create a will online for free. The process can sometimes take only a few minutes. You’ll gain peace of mind about passing assets on to your loved ones in a streamlined way.
16. Follow a Budget
If you don’t currently have a record of your expenses each month, start keeping track. Also monitor your sources of income and evaluate how your funds are used each month. Aim to keep a budget after you retire as well. “Remember to include not just everyday expenses but also potential health care costs, travel plans and provisions for emergencies,” Carlson says.
17. Make Planning a Habit
Set aside time regularly to go over your budget, long-term savings plans and other money matters. “Develop a strategy for important decisions,” Edmisten says. “Have a plan for how to save on taxes throughout retirement. Careful tax planning can help you avoid penalties and make sure you are taking more income when your taxes are low and less when your tax bracket is higher.”
[Watch for These Trends Shaping the Future of Retirement]
18. Talk to Retirees
Have conversations with individuals who have retired, and ask them to share their secrets. You may learn a few strategies to put into place that can help you make your retirement goals a reality.
19. Start an IRA
During 2023, you can contribute up to $6,500 in a traditional individual retirement account or a Roth IRA. If you’re age 50 or older, the contribution limit is $7,500. You can set up an IRA through your bank or another financial institution.
20. Follow a Financial Blog
If you’re near retirement, want to retire early or are looking for money tips, consider regularly visiting a financial website to continue learning. You may be able to subscribe to a newsletter that will provide news and advice about personal finance topics.
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20 Steps to Take When Preparing for Retirement originally appeared on usnews.com
Update 05/10/23: This story was previously published at an earlier date and has been updated with new information.
