Retirement Planning in 2022: An Introduction & How-to Guide

In your younger working years, retirement was just a faraway dream. But as the decades go by, you’ll start to see it looming closer, and excitement can also turn to worry. Are you truly financially prepared?

A little retirement planning can go a long way. But when it comes to how to plan for retirement, there are more than a few different approaches. This guide will take you through the steps of making sure you have enough set aside to relax and enjoy life.

When Can You Retire?

You might have your eye on the earliest retirement date available. But that’s not always the best idea. Yes, you can retire at age 62, but you’ll reduce your monthly Social Security payment substantially. If you were born after 1959, your benefits will be reduced by 30 percent and any spouse’s benefits you receive will be reduced by 35 percent.

One of the most recommended retirement strategies is to wait until age 70 to retire, when your benefits top out. You’ll get a full 132 percent of what you’d get if you retire at full retirement age, which is age 67 if you were born in 1962 or later. It’s also important to look at any pensions you receive and the minimum retirement age.

Steps to Starting Your Retirement Plan

Retirement financial advice can be all over the place, especially if you’re listening to a variety of experts. But your retirement planning is unique to your own planned retirement age and financial needs. Here are some steps to take to get started preparing for retirement.

Step 1: Understanding when to start retirement planning

It’s never too early to start financial planning for retirement. Ideally, you’d start putting money into a retirement savings plan when you’re in your 20s, beginning your career. If you have a job with benefits, part of your retirement financial planning might already be done for you. If possible, max out any 401(k) your employer offers, whether or not your employer matches your contributions.

A retirement planning guide will also typically tell you that it’s never too late to start retirement planning. You don’t need a "Retirement for Dummies" book to tell you that. You’ll need to stop and assess how much you’ve saved already, then set a plan for supplementing that. At age 50, you can take advantage of catch-up contributions to your 401(k), 403(b), SARSEP, or governmental 457(b). Even a little extra each year can provide a nice supplement to your monthly Social Security income.

Step 2: Prioritize Your Financial Goals

As you look at your steps to retirement security, you may have other financial goals mixed in. In your 20s, you could be preparing to buy a home. In your 30s, you may finally commit to getting out of debt for good. All of these financial goals are important, too, but how do you squeeze retirement savings in at the same time?

An important part of how to start a retirement plan is prioritizing your savings goals. A typical retirement guide might not take that into account. In your younger years, building an emergency fund, saving for a downpayment on a home, and paying off debts like student loans and credit card bills will likely take top priority. To keep yourself on track, set a dollar or percentage goal and have the money automatically moved into a dedicated retirement savings account with each paycheck.

Step 3: Determine How Much Money You’ll Need to Retire

From retirement plans for dummies to the most advanced retirement planning advice, you’ll find that experts always recommend setting a retirement budget. You can start with the Social Security Quick Calculator on the SSA’s website. Then factor in any pensions or other monthly income you’ll get after you retire. That will give you an idea of the base income you’ll need to supplement with funds from your retirement savings accounts.

The second part of your retirement finance worksheet should list expenses. You can use your current spend on items like housing, utilities, and groceries as a good jumping-off point, then consider whether you’ll cut back on those costs after retirement. Your house might be paid off by then, for instance, or you could decide to downsize to a smaller place that has more affordable utilities. But keep in mind that you might scale up spending in other areas, such as travel and healthcare.

Step 4: Choose the Best Retirement Plan for Your Situation

When it comes to starting a retirement fund, your approach might be completely different than someone else’s. First, look at any retirement savings options available to you through your job. If you can get a 401(k) through your workplace, this is a great way to easily move money over each month, and your employer may even put some money into the account.

As you go through any retirement 101 instruction, keep in mind that your situation is unique, as is anyone else going through the same program. It’s important to take the advice and apply it to your circumstances.

One area where people differ is how they want their savings taxed on the distributions they take after retirement. Retirement savings accounts like 401(k)s and Traditional IRAs put the money in pretax, saving you now. But if you choose a Roth IRA or Roth 401(k), you’ll put the money in after tax, giving you savings when you take the money out later. Look at whether you’ll want that tax burden during retirement and keep that in mind as you choose a plan.

Step 5: Determine Your Investment Strategy

Once you’ve estimated your retirement expenses and income, the best retirement advice is to come up with a strategy. Even if your strategy is only to put $10 or $20 into your retirement savings each month, that’s a plan that you can scale up as you get closer and your finances strengthen.

Obviously, you’ll probably feel tempted to read plenty of retirement planning articles, and those can be great. But if you want to get into investing, it’s important to gradually move beyond the retirement investments for dummies approach. An expert investor can assess your goals and help you build a portfolio that will continue to earn dividends for you even after retirement.

Final Thoughts

Retirement planning should begin as soon as possible. It’s never too early, but it’s also never too late. It’s just as important to know how to start as it is to know when to start. We recommend working with a certified financial planner who can help you identify your goals and come up with a savings plan that will help you cover all your retirement expenses.