How To Set Retirement Goals: Steps and Tips

Envision your ideal retirement: Are you relaxing on a beach? Starting a new hobby? Or finally taking that trip to Paris?

A comfortable retirement looks different for everyone, but most investors share some common goals. We’ve broken those down into 4 key categories to help you start planning. Determining how you prioritize these goals is the first step in creating a road map to financial security in retirement.

Since higher earners will get a smaller portion of their income in retirement from Social Security, they generally need more assets in relation to their income. We estimated that most people looking to retire around age 65 should aim for assets totaling between seven and 13½ times their preretirement gross income.

How to Set Your Retirement Goals | Phil Town

Why should you set retirement goals?

There are several benefits that come with setting retirement goals. The most important advantages of retirement goal setting include:

What are retirement goals?

Retirement goals, sometimes referred to as the process of retirement planning, is the act of establishing retirement income goals and the necessary actions needed to reach those goals before retirement. There are several steps that go into retirement goal planning, including determining sources of income, creating a retirement savings programs, estimating potential retirement expenses and managing risk and current and future assets. Many people use a cash flow projection plan to determine if their retirement income goal will be accomplished.

Most people consider retirement goal planning a lifelong process, and many of the benefits of this process arent realized until after retirement. While you can begin planning for retirement at any time, the sooner you start, the more likely youll be able to meet those goals by the time you retire.

There are a few key components of a successful retirement plan. These components include:

How to set retirement goals

The following are steps to take when establishing retirement goals and a retirement plan:

1. Start simple

Some of the best plans are the most simple, and theres nothing wrong with beginning with a simple retirement plan at first. A great way to do so is to take advantage of any retirement benefits your employer offers such as a 401(k) plan. If your employer does not offer retirement plans, consider opening a Roth IRA plan if youre qualified. Set up automatic payments for whichever plan you choose to open to ensure you stay on track to meet your retirement goals.

2. Determine how much you can put towards retirement

Many financial experts advise that individuals put at least 15% of their income towards retirement on an annual basis. A great way to determine where you have extra money on hand to put towards retirement is to track your spending for a month and identify areas in which you have extra cash available. Put this money towards your retirement account.

If you arent able to put 15% of your annual gross income towards retirement, determine how much you can put towards retirement now and create a plan that will allow you to eventually put 15% towards retirement each year. For example, you could begin by putting 5% towards your retirement and slowly increase this number until you get to 15%.

3. Understand how much time you have to save for retirement

Your time horizon, or how long you have until you want to retire, is an important component of setting retirement goals. If you have a longer period of time before retirement, you have the opportunity to make riskier investments that could potentially bring in more money over the long run for your retirement. If you are starting your retirement at a later age, you may want to consider less-risky investments that will allow you to save for retirement in a more predictable way to ensure you dont end up losing money.

4. Get a clear understanding of your retirement spending needs

Being honest about your anticipated post-retirement spending habits will help you better plan for retirement. For example, if you want to travel often when you retire, youll likely want to set a goal to create a traveling fund thats separate from your basic retirement fund. Other things to consider are whether your mortgage will be paid off once youre retired, anticipated health expenses and regular activities you want to engage in while retired. Youll also need to account for living expenses such as rent or mortgage payments, utility bills, food expenses and other needs that require money to fulfill.

5. Invest for the long term

Many people turn to investments to help support them when they retire. Aside from a 401(k) plan or a Roth IRA, there are several other investment options that can prove lucrative once you reach the age of retirement. When investing for retirement, its important to invest for the long term rather than the short term. This is especially true if you choose to invest in the stock market. If youre unsure of where to invest, consider hiring a financial planner who can assist you in making these decisions.

6. Know when to adjust your retirement strategy

When establishing retirement goals at a young age, its often a good idea to take a more aggressive and riskier approach to help grow your retirement savings and investments. However, as you get older and begin needed the money you invested, it may sense to re-evaluate your approach and take require less risk. For example, you could choose to invest your savings in certificates of deposits (CDs) which come with little to no risk and provide higher interest rates than more traditional savings accounts.

Tips for retirement goal setting

The following are a few tips to keep in mind when establishing retirement goals:

FAQ

What is a realistic goal for retirement?

Retirement experts have offered various rules of thumb about how much you need to save: somewhere near $1 million, 80% to 90% of your annual pre-retirement income, 12 times your pre-retirement salary.

What are 3 examples of retirement plans?

Fidelity’s guideline: Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. Factors that will impact your personal savings goal include the age you plan to retire and the lifestyle you hope to have in retirement. If you’re behind, don’t fret.

What are the 4 pillars of retirement?

To help you navigate your options, here’s a comparison of six of the most common types of retirement plans:
  • 401(k)
  • Traditional IRA.
  • Roth IRA.
  • SEP IRA.
  • Simple IRA and Simple 401(k)
  • Solo 401(k)

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