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Retirement Planning: How to Get Started at Any Age

Imagine the life you want when work ends, estimate how much cash you'll need and build a savings plan. Life stages dictate retirement planning priorities.
401(k), Advisors, Financial Planning, Investing, Personal Finance

Retirement planning may sound like a daunting journey, but a few basic tools and a little investing know-how can help create savings to last long after your final paycheck.

Different people will have different questions — for millennials, about getting started and maximizing savings; for Generation X, about setting more specific retirement income goals; and for baby boomers, about preparing for the payout of decades’ worth of savings — and the tools available will vary. But everyone should begin with the same question.

How much will I need?

No matter how old you are now, or whether you sit down with a financial planner or on your own, retirement planning begins by imagining the life you want when your work days are over. Estimate future expenses (Where will you live? What might your spending look like?), then create a savings plan to build and manage your assets.

The goal is to replace 70% to 90% of your annual pre-retirement income through savings and Social Security, according to personal finance experts. For example, a retiree who earns an average of $100,000 annually before retirement should expect to need $70,000 to $90,000 a year in retirement to maintain their standard of living.

To get you there, a retirement plan invests your money in stocks, bonds and other assets that are likely to gain more value over time than cash sitting in a bank savings account. Experts recommend investing 10% to 20% of your income each year toward your retirement savings, and to review your plan every year to make sure you’re on course.

Are you on the right track to retire?

I am

years old, my household income is

and I have a current savings of



Retirement planning: Millennials (ages 22 – 37)

Millennials are all grown up. Younger members of the generation are entering the workforce for the first time, and the oldest millennials are now in their upper 30s — an age where children and mortgages are common.

Here are some retirement planning tools and things to know.

Employer-sponsored retirement plans. Since the demise of company pensions, the bedrock of retirement planning has shifted to plans like the 401(k), 403(b) or another investment account that your employer creates, contributes and helps manage for you.

These plans have a number of things going for them, such as …

  • … the advantage of time. The more you invest early in your career, the greater the payoff down the line thanks to compound interest. For example, if you invest $250 a month that earns 8% at age 25, you’ll have $878,570 in savings by age 65. Start a decade later, and you’ll only have saved $375,073.
  • … “free money.” Actually called a company match, this is the amount your workplace puts toward your retirement war chest. Always try to meet your employer’s match to get all that generosity.
  • … tax savings. The amount you put in leaves your paycheck before you get it or Uncle Sam takes a cut. That reduces your taxable wages and potentially fattens tax refunds. You are allowed to contribute as much as $18,500 in your pre-tax income toward employer-sponsored plans.

Roth IRA. Another tax-advantaged retirement savings account, a Roth IRA (for “individual retirement account”) can be a strong choice for millennials because you pay taxes now on contributions, but won’t have to pay taxes once you use the cash in retirement, unlike 401(k) savings. You can contribute as much as $5,500 a year to a Roth IRA.

Millennials might consider a Roth IRA for their retirement because …

    • … your savings grow tax-free. The longer your savings time horizon, the more valuable that tax-free growth becomes. If you anticipate that you’ll be in a higher income bracket when you retire — which, at this point in your career, should be your goal — a Roth IRA can be a great source for tax-free retirement income.
    • … Roth IRAs have income restrictions that limit their use as your income level climbs, so this tool may not be an option later in your career.

Retirement planning: Gen X (ages 38 – 53)

Gen Xers are entering the midpoint of their career when income is higher but so too are financial obligations for home and family. Retirement planning becomes less abstract, and Gen Xers hit an important age that will help those behind on retirement savings goals.

Here are some retirement planning tools and things to know:

Traditional IRA. If you’ve maxed out your 401(k) contributions and have additional cash to invest, another tax-advantaged account to know about is a traditional IRA. As with a 401(k), cash you contribute is considered pretax and will reduce your tax bill the year of contributions. Total combined contributions to traditional IRAs and Roth IRAs are limited to no more than $5,500 a year. (Read more about IRAs.)

Financial planners. Advice is important at any investment stage, but as your financial picture becomes more complex, you may benefit from an expert opinion. You can choose human advisors, the growing number of algorithmic driven robo-advisors or a combination of the two.

Life insurance. This is a good idea once you have a family, and there are two main types of life insurance: term and permanent. Term life insurance, which generally covers a 10- to 30-year period, is less expensive and can be a good way to protect your financial security, especially while paying a mortgage and raising children.

Catch-up contributions. Gen Xers unwrap a present at age 50: You can now contribute up to $24,500 a year in pre-tax income to a 401(k) or other employer-sponsored retirement account. Annual contribution limits for traditional and Roth IRAs are raised to $6,500 per year.

Retirement planning: Baby boomer (ages 54 – 72)

We may become blasé about birthdays as we age, but for retirement planning, baby boomers are hitting a raft of important candles on their cake. Late in your career, your investing moves should be toward protecting and preparing to use your savings to replace your paycheck in retirement.

Here are some retirement planning tools and things to know:

Distribution penalties lift at age 59½. Until this age, most withdrawals from your 401(k) or traditional IRA carry a 10% tax penalty. After this age, you can make early withdrawals without penalty — but it’s still best not to take money out before retirement.

You can tap Social Security. You qualify for partial Social Security benefits at age 62, and full benefits between ages 65 and 67 (depending on the year you were born). But if you wait until age 70, your payments will be at the highest level.

Shift portfolio mix to safer investments. In your early and middle career, your investment mix should be set for maximum growth. Baby boomers nearing the end of their careers are more concerned about protecting their savings and should shift their asset allocation to have a higher ratio of low-growth-but-safer investments such as bonds, annuities and money market funds.

Required minimum disbursement begins at age 70½. You must begin making regular withdrawals from your 401(k) or traditional IRA accounts, which will be taxed as ordinary income. If you miss a required distribution or fail to take enough, there’s a big penalty: When you file taxes, you’ll owe 50% of the amount not distributed. (The rule is different for Roth IRAs, which don’t require minimum disbursements until the account owner dies and a beneficiary inherits the account.)

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