How to start planning for retirement
Retirement Planning

How to start planning for retirement?

Table of Contents




Retirement planning is an important process that everyone should go through to ensure they are financially prepared when they decide to stop working. Proper retirement planning helps you understand how much money you need to save, what sources of income you will have, and how to manage your money in retirement. Here is a guide on how to start planning for retirement:

Assess your current finances

The first step is to take stock of your current financial situation. This includes:

  • Reviewing your monthly income and expenses. Track your spending to see where your money is going. Look for areas where you can cut back on spending to free up savings.
  • Listing all your assets – savings and retirement accounts, home, investments, etc. Know how much you currently have saved for retirement.
  • Understanding your current debts – mortgage, loans, credit cards, etc. Work to reduce high interest debts.
  • Calculating your net worth by subtracting debts from assets. This gives you a baseline to measure progress.

Estimate your retirement expenses

Once you understand your current finances, estimate how much income you will need in retirement. Some key projections include:

  • Monthly budget – Develop a retirement budget based on your current spending. Adjust as needed, e.g. reduced transportation and work related costs.
  • Housing – Will your housing costs change? Do you intend to downsize or relocate?
  • Healthcare – Review insurance options like Medicare. Estimate premiums, co-pays, and out-of-pocket costs.
  • Long term care – Research options should you need long term care. Factor this into your estimates.
  • Inflation – Account for 2-3% annual inflation which will increase your expenses over a 30 year retirement.
Expense Current Retirement
Housing $1000 $1200
Transportation $500 $300
Food $500 $500
Healthcare $250 $400
Entertainment $200 $300
Total $2450 $2700

Having an estimate of your retirement expenses will help you calculate the amount you need to save.

Determine your retirement income

In retirement, you will depend on the following income sources:

  • Social Security benefits – At your full retirement age (likely between 66-67) you will receive your full benefit based on your work history. You can access reduced benefits as early as 62.
  • Employer pension – If you have a traditional pension, you will receive regular retirement income. Know the estimated amount and payout options.
  • Personal savings and investments – This includes retirement accounts like 401(k)s and IRAs, taxable investment accounts, annuities and other savings.
  • Part time work – Some retirees choose to work part time for extra income. Having a strategy helps cover any income gaps.
  • Other sources – This may include rental property income, inheritance, reverse mortgage, etc.

Evaluate each income stream to determine if you will have enough income to cover your retirement expenses. If not, revisit your savings strategy.

Choose a retirement savings plan

Once you know how much retirement income you need, the next step is to craft a savings plan to help close any gaps. Options may include:

  • Employer retirement plans like 401(k) or 403(b) – Contribute at least enough to get the full employer match. Increase contributions by 1-2% each year.
  • IRAs – Max out contributions to Traditional and Roth IRAs. The 2023 limit is $6,500 per year if under age 50.
  • Health savings account – Contribute to an HSA which can be used to pay healthcare expenses in retirement.
  • Other investments – Invest consistently into a diversified portfolio of stocks, bonds, mutual funds, ETFs and other alternative investments.
  • Real estate – If interested, consider investing in rental property which can provide retirement income.
Savings Vehicle Current Increase By
401(k) $5000 1% per year
Roth IRA $3000 $500 per year
Taxable Investments $2000 $1000 per year

Automate contributions so they happen consistently without thinking about it.

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Reduce debt before retirement

It is wise to pay off debt with high interest rates first. This avoids having expensive debt payments in retirement:

  • Credit cards – Pay off credit card balances in full each month to avoid interest changes. Have a payoff plan for existing balances.
  • Personal loans – Pay off high interest loans aggressively. Only take low interest loans if affordable.
  • Mortgage – Pay off your home before retiring if possible. Alternatively, downsize to reduce costs.

Retiring debt free (with the exception of your home) provides peace of mind and reduces expenses.

Know your retirement options

Understand when you are eligible for retirement and Social Security benefits:

  • Full retirement age – For anyone born 1960 or later, this is age 67. You receive 100% of your Social Security benefit.
  • Early retirement – You can retire as early as 62 but your benefit is reduced by 30% or more if claiming Social Security before your full retirement age.
  • Delayed retirement – If you delay retirement beyond age 67, you earn delayed retirement credits up to age 70. Your benefit increases 8% per year.
  • Social Security strategies – There are strategies like file-and-suspend and spousal benefits to optimize your household benefits.

Decide what tradeoffs work best for your situation. Do you want to retire early and accept a reduced benefit? Or keep working to increase your benefit?

Test different retirement scenarios

Use retirement calculators to simulate different retirement scenarios. Ask yourself:

  • What if I retire at age 65 vs age 70? What is the impact?
  • What if I downsize my home and reduce housing costs?
  • Can I retire if I reduce my retirement budget by 20%?
  • What if I delay Social Security until age 70?

Testing scenarios helps you understand tradeoffs and make the best decisions to achieve your retirement goals. Adjust your plan as needed.

Consult a financial advisor

Partnering with a financial advisor can be very helpful when creating your customized retirement plan. Advisors help with:

  • Clarifying your retirement goals and vision. What lifestyle do you want?
  • Optimizing your investment portfolio mix and risk management.
  • Evaluating income strategies to fund your retirement.
  • Connecting you with professionals like CPAs and estate planners.
  • Keeping you on track and adjusting your plan as life changes.

Look for a fiduciary fee-only advisor who is professionally required to provide advice in your best interests.

Track your progress

Once you have your retirement plan created, track your progress on an ongoing basis:

  • Review your retirement plan annually or when major life events happen. Make adjustments as needed.
  • Log in to your investment accounts to monitor growth and rebalance your portfolio.
  • Celebrate retirement savings milestones which will motivate you to keep going!
  • Attend retirement seminars and read retirement articles and books. Continually educate yourself.

Retirement planning is an evolving process as your finances and life situation change over time. The key is to start planning early so you have time to course correct along the way. Following this guide will help you successfully prepare for your retirement.


Blanchett, D., & Idzorek, T. (2015). The retirement consumption puzzle: Actual spending change in panel data. The Journal of Financial Planning, 28(5), 34-42. Retrieved from

Franklin Templeton. (2020). The basics of retirement income planning. Retrieved from

Internal Revenue Service. (2022). Plan now to get full benefit of saver’s credit; tax credit helps low-, moderate-income workers. Retrieved from

Investopedia. (2022). When can I retire? Retrieved from

USA Gov. (2022). Social Security retirement benefits. Retrieved from


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