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  3. 5 steps to creating your retirement plan

Photo of someone saving and planning for retirement by creating a retirement plan.

v steps to creating your retirement plan

Even if it's a long way off, think about what y'all want your money to do for you when you retire.

Perhaps you desire to pay off your mortgage, help your grandkids with college expenses, camp in your 10 favorite national parks, or start a new hobby yous haven't had time for during your working years. If you can picture what you want retirement to expect like, it's easier to plan for information technology.

Graphic of a thumbtack.  Tip: Refresh your memory by looking at retirement-related goals you set when you created your fiscal plan.

No matter what your goals are, saving and planning now is a smart thought, and so allow'southward walk through five steps to helping you create your retirement plan. (You tin can use our retirement savings checklist (PDF) to log your numbers as y'all go.)

one. Notice out how much coin you may need in retirement.

Here's how you practice it: Use our Retirement Wellness Planner, a tool that gives a quick snapshot of how much income y'all may demand in retirement. It as well helps place a surplus or gap.

Just plug in your current almanac income, how oft you're paid, your pre-tax contribution to your retirement account (called a "deferral"), current retirement savings, estimated Social Security benefit, current historic period, and desired retirement age. You tin can adjust your deferral to encounter how the numbers change.

This is also when a financial professional person tin exist a big help if you want a customized plan for retirement. To learn more, read how to cull and work with a financial professional.

2. Save. Invest. And salve some more.

Most experts say at least 10% of your income (plus employer contributions) should go toward retirement. If you've started saving later in life, y'all may need to bump that upwards.1

Not possible right at present? That's OK. Salve what you tin can and commit to increasing 1% every year until yous tin can hit the marker. Try to save enough to become your employer's matching contribution (if they offer one) so y'all don't leave money on the table.

Options for saving and investing tin can include:

  • Company sponsored retirement plans like a 401(yard), 403(b), or a Thrift Savings Program for government employees
  • Private Retirement Accounts (IRAs)
  • Roth IRA
  • A diversity of investments like common funds, stocks, bonds
  • Life insurance that builds cash value

The sooner you start, the more than potential your money has to grow over time. It'southward all nearly compound earnings—when your money earns more money.

Let'due south say you invest $ten,000. And yous earn five% over a year.

And so at present you have $10,500. Over the coming year, y'all brand 5% non only on your initial $10,000 only also on the $500 you earned last year. That'south the benefit of compounding in action.2

Read "When to starting time investing: 4 signs you're gear up" to acquire more near the power of compound earnings.

To learn how 401(m)south, traditional and Roth IRAs, and Roth 401(k)s compare, read about retirement savings business relationship options.

three. Know how Social Security fits in your retirement program.

Will it be effectually when you retire? Maybe. Mayhap not. Or information technology could be reduced or replaced by something else. This is what we know nigh Social Security today:

  • The earliest yous can draw Social Security (or spousal benefits) is age 62, just the longer you wait to take information technology, the more money you lot'll generally get.
  • If you're a middle income earner hoping to have eighty–100% of your pre-retirement income, you tin plan to collect most twoscore% of that income from Social Security.3
  • If you have Social Security before your full retirement historic period (currently 67, if y'all were born in 1960 or later), and you're working and receiving benefits, in that location are limits on how much income you can make.
  • Your benefits tin be taxed! Up to 85% of your cheque. It'due south a circuitous formula, so acquire all nigh it on the Social Security web site.

Prepare a "my Social Security" account at ssa.gov to get an estimate of your potential future benefits and log the information in the retirement savings checklist (PDF).

Another reason to fix up an business relationship is to assist protect your personal information. Only one account is permitted per Social Security number and address, so claiming your account is one more than way to keep your data secure.

Want to acquire more?

  • Read this Q&A: Will Social Security have you covered?

iv. If you're short, determine how you'll make upward the difference.

If at that place'south a gap between what you're saving now and what you may need, y'all take options. Consider the following.

  • Defer more coin into your 401(k) retirement program, especially if you're not setting aside enough to get the full company match. Effigy out how much information technology costs per calendar week to put some other i% in your retirement plan. Go far bite-sized and information technology's more than achievable. Then go on to crash-land your deferral another 1% as you can. A good time to practice that is when you become a promotion or raise.
  • Make annual contributions to a traditional Individual Retirement Account (IRA). Similar a 401(k), it allows you to invest for the long-term and pay taxes on earnings subsequently.
  • Make catch-upwards contributions to your 401(chiliad) (if your programme allows) or IRA if you're age 50 or older.
  • Manage debt so you lot accept more coin in your budget for long-term savings. (Wondering how to pay off debt and save for retirement at the same fourth dimension? Read 5 steps to residue both.)
  • Plan to work longer, if you lot're able. Delaying retirement past a year or two could help boost your savings.
  • Work for a significant crash-land in income and then salvage it. How? Change jobs, try for a promotion, or turn a side hustle into extra cash flow.
  • Win the lottery. (OK, possibly don't rely on this ane.)

five. Make a appointment with your 401(thousand) program and IRA once or twice a year.

  • Review your asset allotment program. Your retirement accounts should friction match your take chances tolerance and goals. Brush upward on asset classes and what's in your retirement programme to ameliorate sympathise your options.
  • Check your progress. Are yous saving more than? If not, consider changing your deferral, adding coin to your IRA, or making a catch-upward contribution. (See No. 4 above.)
  • Update beneficiaries on your accounts and keep your contact information current. If you have retirement accounts with Principal, you can log in to brand those changes.

Next steps

  • Need a fiscal professional to help you figure out your next steps? We'll help you lot find one.
  • If you lot're interested in starting an IRA or consolidating other accounts into your existing one, call 800-247-8000, ext. 2503 betwixt 7 a.m. and 9 p.m. CT. Non familiar with IRAs? Here'south a refresher.

Read next

1 Based on analysis conducted by the Principal Fiscal Group®, October 2015. The estimate assumes a twoscore-year bridge of accumulating savings and the following facts: retirement at age 65; a combined individual and programme sponsor contribution of 12 per centum; Social Security providing 40 percent replacement of income; vii percent annual marketplace returns; 2.5 percent annual aggrandizement; and 3.5 percent almanac wage growth over forty years in the workforce. This estimate is based on a goal of replacing about 85 percent of salary. The causeless rate of return for the analysis is hypothetical and does not guarantee any future returns nor represent the return of any particular investment. Contributions exercise non take into account the touch of taxes on pre-tax distributions. Individual results will vary. Participants should regularly review their savings progress and post-retirement needs.

two The assumed rate of return is hypothetical and does not guarantee any future returns nor represent the returns of any particular investment. Amounts do not reflect the touch on of taxes on pre-revenue enhancement distributions. Individual taxpayer circumstances may vary. For illustrative purposes but.

three Social Security Administration, ssa.gov, https://www.ssa.gov/policy/docs/population-profiles/middle-class-beneficiaries.html

Reference of checklist is non an exhaustive list of what you should do. It and this advice are provided as education just with the understanding that Principal® is not rendering legal, bookkeeping, investment advice, or tax communication. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, taxation, investment, or accounting obligations and requirements.

The subject matter in this communication is educational only and provided with the agreement that Principal® is not rendering legal, accounting, investment advice or tax advice. Yous should consult with appropriate counsel or other advisors on all matters pertaining to legal, revenue enhancement, investment or bookkeeping obligations and requirements.

The Retirement Wellness Planner information and Retirement Wellness Score are limited only to the inputs and other financial assumptions and is not intended to be a fiscal programme or investment advice from any visitor of the Principal Fiscal Grouping® or plan sponsor. This reckoner only provides pedagogy which may be helpful in making personal financial decisions. Responsibility for those decisions is assumed past the participant, non the plan sponsor and not by whatsoever fellow member of Main®. Private results will vary. Participants should regularly review their savings progress and post-retirement needs.

Increasing your contribution does not guarantee you lot put yourself in a improve spot.

Investing involves take chances, including possible loss of chief.

Insurance products and program administrative services provided through Principal Life Insurance Co. Securities offered through Principal Securities, Inc., 800-547-7754, member SIPC and/or independent broker-dealers. Principal Life, and Principal Securities are members of the Master Financial Grouping®, Des Moines, Iowa 50392.