4 Tips for Planning for Retirement

If you’re a working professional in your 20s or 30s, planning for retirement might seem like a problem for the distant future. You may not think you need to start a retirement plan for a decade or more, or you might think that you can’t afford to start putting anything aside right away. A startling number of professionals in multiple generations are underprepared to retire, and the truth of the matter is it’s never too early to start planning for retirement.

The Goldman Sachs 2024 Retirement Survey & Insights Report reveals some interesting findings about the generational differences in regard to retirement. Almost half of Gen Xers believe they’re behind schedule with retirement savings, but only 55% of them have a personalized plan. Baby Boomers are working later into their golden years than anticipated and also feel behind, and while Millennials are the most likely to be impacted by economic strains, they’re also the most likely to have individual plans in place for retirement savings.

Finally, Gen Z wants to retire early, but 61% of them expect to fund less than half of their retirement from personal savings, attributing the other half to pensions or Social Security. However, many working adults also worry that Social Security will run out within their lifetimes, which puts more of a financial burden on individual savings to live a comfortable retirement.

No matter your age or what you have saved already, it’s never a bad time to reevaluate your retirement plan or develop a sound strategy. Here are the top 4 tips for planning for retirement that will set you up for your sunset years.

Start Early

No matter when you plan on retiring, starting early is the most important thing you can do to maximize your savings. According to a study published by Northwestern Mutual, most Americans believe they need around $1 million saved to retire comfortably. However, as of 2024, most workers only have approximately $88,000 saved on average—a long way away from their estimates.

Starting your savings journey early—ideally, in your early 20s—means you can take advantage of compound interest in your retirement accounts. The more time your money has to grow and accrue interest, the more you’ll have by the time you retire. For example, if you put aside $300 a month starting at age 25, assuming a 7% annual interest rate, in 40 years you’ll have saved $718,686 to retire at age 65.

 If you’re a little older and haven’t saved much yet, there’s never a better time to start! You may just need to save more aggressively to reach your goals, considering you won’t have as much time for your money to grow.

Know Your Options

Should you put your money into a 401(k), a Traditional IRA, a Roth IRA, or something else? The answer is… well, that depends on your situation. Before you start to save, you’ll want to research what options are available to you, and the pros and cons of each one.

401(k)

According to Fidelity, 401(k)s are one of the most popular ways to save for retirement—approximately 38% of the working population contributes to one each month. 401(k)s are sponsored by employers and allow you to set aside a percentage of each paycheck into the account, up to a certain dollar amount per year. In most cases, these accounts are pre-tax, meaning the money is placed into the account before you’re charged taxes for the year. If you withdraw before a certain age, you may have to pay a penalty on top of your income tax, but if you wait until retirement to withdraw, there is no penalty.

Some employers also offer matching contributions up to a certain percentage of your salary, so it’s good practice to contribute at least as much as your employer is willing to match. You can always put aside more later or adjust your savings as your financial situation changes.

IRA

Individual Retirement Accounts (IRAs) are accounts that you set up with a financial institution, independent of an employer. In a Traditional IRA, you can make pre-tax contributions up to the annual limit, with said limit typically depending on your income level. Roth IRA contributions are similar, but instead of putting money into the account before taxes, the funds are collected after you pay income tax on them. This means that when you withdraw the funds in retirement, you won’t have to pay income tax, as they’ve already been taxed. Roth IRAs are a good option if you think you will be in a higher tax bracket upon retirement than you were when you started saving, and in general, can be more flexible if you need to withdraw the funds early (although you may still be subject to penalties depending on your age at the time of withdrawal).

Create a Budget and Stick to It

It can be difficult to save for retirement if you’re stressing about living paycheck to paycheck. However, creating a budget that takes your retirement contributions into account and sticking to it can help ease some of the strain. Take some time to tally up your monthly expenses and calculate your monthly income that you’ll have available for those expenses. A good rule of thumb to follow is to pay yourself first—set aside what you want to save for retirement or emergencies before you spend any of your money. That way, you know you’ll have the money set aside for the future, and you can adjust the rest of your budget accordingly.

Many people use the 80/20 rule to do this: putting aside 20% of your paychecks in savings and the remaining 80% for everything else. You can adjust these percentages based on your individual income and situation, but making sure you set aside money for the future before you pay your bills can go a long way toward helping you live a comfortable retirement.

Ask for Help

Finally, even if you’ve been dutifully setting aside money into a 401(k) or IRA, you may be wondering if there’s more you can do to save. To get the most out of your retirement savings, you can always consult a Financial Advisor to help you make more informed decisions about your retirement options. There are several types of advisors you can work with, including certified public accountants, certified financial planners, and investment managers. Their specialties may be different, but they can all help you determine what savings options are the best for your individual situation.

Plan for Your Future at LCS

At LCS, we strive to foster an environment that will help you not only advance your career but help you plan for the future as well. With a competitive 401(k) match and a host of other benefits, we believe that taking care of our employees helps our business thrive. If you want to cultivate a career that will be with you through all of life’s stages, look into our open positions and apply with us, today.