Pretirement is defined by AARP as that stage of life when you can make small planning and saving changes to set yourself up for your financial future. No matter where you are in your preparations, there are small steps you can take during your Pretirement years that can make a big difference down the line. Here’s what you can do today to get started.
1. Decide When You Want to Retire
This choice will shape many aspects of your plan, from how much you need to save to when you’ll begin drawing on benefits like Social Security. Bear in mind: Social Security benefits are reduced if you take them before full retirement age, and retirement accounts, such as 401(k) plans and IRAs, have a minimum age requirement for when you can withdraw from your accounts without penalty. The sooner you decide on your retirement age, the clearer your path forward will be, allowing you to set realistic goals and create a timeline for reaching them. You can start by taking a simple quiz to get a free, personalized plan based on your current financial situation. Whether you’ll retire early or work longer, having a target date will help you stay focused as you work toward your financial future.
2. Set a Retirement Budget
Figure out how much you need to have saved in order to retire. You don’t have to do the math on your own — there are plenty of online calculators that can estimate your budget based on factors like age, salary and lifestyle. As a starting point, try the retirement calculator from AARP. While your target number may evolve over time, creating one now is an important first step in preparing for retirement.
3. Increase Your 401(k) Match
Take advantage of your 401(k) plan if your employer offers it by contributing enough to get the full employer match. If that’s not feasible right now, you can increase your contributions by 2% year after year to help your account grow. Although it’s not the kind of account you have to watch daily, checking in once a year and reevaluating your contribution can help build your retirement fund.
4. Set a Realistic Savings Goal
Find out how much you can realistically set aside. You can follow the 50/30/20 budgeting rule, in which you spend 50% of your salary on needs like rent and groceries, 30% on wants and 20% on savings. Everyone’s situation is different, so set a goal that works for you. Once you’ve set a savings goal, stay consistent. You can achieve that in a number of ways, like setting up calendar reminders or automated transfers from your checking to your savings account each month. You can also track your progress on a spreadsheet, then tally up how much you’ve saved by the end of the year.
5. Open an IRA Account
In addition to your savings and 401(k), you can also open a traditional or Roth IRA as another option to build your retirement. There are multiple services that offer IRAs, and setting one up is easy, either in person at a brokerage firm, credit union or bank or online. Once it’s set up, you can begin a monthly contribution (automated or manually) taken directly from your bank account and, if you feel comfortable, begin investing to help your money grow.
Planning for your future can feel overwhelming, especially when retirement feels closer than ever. If you’re not sure where to begin, take a simple quiz at ThisIsPretirement.org to receive a free, personalized retirement savings action plan today.
