Financial Fundamentals Blog

7 Ways to Prepare for Retirement

A couple sitting at a kitchen table with a laptop and paperwork, strategizing ways to prepare for retirement


It’s never too early to start preparing for retirement. In fact, the earlier you start saving and investing, the more money you’ll have saved when you retire! 


Don’t let retirement sneak up on you. Retiring takes years of planning, commitment and money. Let’s take a look at how you can get ahead and maximize the amount of savings you have for retirement.


How to Prepare for Retirement

There are several steps you should take to prepare for retirement and maximize your savings and investments.


1. Create a timeline.

First, think about when you plan to retire and what age you are right now. The difference between these numbers equals how long you have to save for retirement, which can affect how you save for retirement. Creating this timeline will help you better plan out your investments so you have an idea of how much security and risk you’ll need to account for over the years.


2. Determine your retirement goals.

What you want to do during retirement will affect your savings. For example, relaxing and enjoying your golden years at home will require significantly less money than traveling frequently. If you want to help your grandchildren pay for college or other large expenses, you’ll need to factor these into your retirement goals as well.


It may help to have a document with your goals written down. This is a fluid list that will likely change throughout the years, and as your goals change, your savings will also change. You’ll need to account for that as you prepare for retirement.


3. Determine your financial needs.

It’s important to understand what your basic needs are going to cost throughout retirement. For example, do you see yourself going to coffee shops or local restaurants more often? Do you plan to have your mortgage paid off by the time you retire? 


A good rule of thumb is to estimate that you’ll need approximately 70–90% of your pre-retirement income to maintain your standard of living once you retire. However, make sure to also take into account any extra activities you want to do once you retire, such as traveling or helping your grandchildren pay for college. This is where that retirement goals list comes in handy.


4. Take advantage of your employer’s retirement plan.

In 2020, approximately a quarter of employees with access to a company retirement plan didn’t participate. Retirement savings plans such as a 401(k) are beneficial to your retirement savings. Your income taxes will be lower, your company may match your contributions, and automatic payroll deductions make contributing to a plan easy. 


Gather information from your employer about how much you need to contribute to receive the full company match and how long you need to stay in your company’s plan to receive that money. For example, some employers allow for vested contributions on day one, meaning that the contribution is immediately yours. Other employers may not allow for vested contributions until you’ve been with the company for a few years. 


5. Open an IRA.

There are two IRA options: traditional and Roth. IRAs are the most common investment option because of the tax benefits they offer. 

  • Traditional: This is a tax-deferred option. Contributions are deducted from your taxable income, and you’ll pay taxes on this IRA when you withdraw from the account.
  • Roth: These contributions are not tax-deductible, but a large benefit of a Roth IRA is that once you’re able to withdraw funds, your earnings can be withdrawn fully without taxes. This can result in significant tax savings in retirement. 


6. Pay off debts.

If you have credit card or student loan balances, make a plan to pay off your debts before retirement. You’ll be on a stricter budget later, so it’s best to eliminate any debts you can now while you have the ability to put extra money toward the debts.


You can do this in a number of ways, such as debt consolidation or focusing on paying down one debt at a time until you’re debt-free. Paying off your debts also has benefits today: You’ll increase your credit score and have additional money each month to put into savings once your debts are paid off.


7. Don’t withdraw from your retirement savings.

It’s important to not withdraw from your retirement savings unless you absolutely have to. Withdrawing from your retirement savings will reduce your principal and interest, and you may even have to pay withdrawal penalties. 


If you leave your job, it’s important to roll over your retirement savings into your new employer’s plan, leave them in your current plan, or roll them over into an IRA in order to avoid withdrawing from your retirement. Your previous job and new job should provide information on what to do with your retirement savings through your employer.


Get on Track With Your Retirement Preparation

Retirement planning evolves over time. Your goals will change, as will the amount of money you can save and invest. Because this process is continually evolving, it’s important to periodically check to make sure you’re on track for retirement with tools such as our retirement calculator.