The Best Time to Start Retirement Planning? Now.

Summary: You can begin retirement planning at any age, but like with most financial planning, the earlier you start, the better. With some key strategies and tools, you can secure a comfortable retirement.

For a lot of us, retirement planning often gets pushed to the back burner as we juggle the financial demands of daily life — like paying off student loans, buying a home, or saving for our children’s education.

Forbes recommends that Americans start saving for retirement as early as age 25. However, the reality is that many of us don’t or cannot start that early. Therefore, if you haven’t your retirement planning, the best time to start is right now, no matter your age or stage in life.

Saving over time, using the power of compound interest, and making wise investment choices are your best bets to help ensure long-term financial security.

Why start retirement planning early?

The concept of compound interest is a key reason why early retirement planning is so important. Albert Einstein reportedly called compound interest the “eighth wonder of the world,” and for good reason.

When you invest money, you may earn interest not only on your initial investment but also on the interest that accumulates over time. This acts as a force multiplier, allowing your investments to grow exponentially. By investing money over a long period, your returns can generate additional returns, which helps secure your financial future.

If you start at age 25 and save $400 per month or $100 per week, your savings could exceed $1 million by 65, assuming stock market returns of 7%. Just waiting for ten years and starting at age 35, could result in a little over $300,000 in savings at age 65. Delaying for ten years could cost you $700,000!

This doesn’t mean you’ve missed out if you didn’t start saving in your twenties. It’s perfectly okay if you couldn’t start saving that early whether due to financial constraints or a lack of knowledge at the time.

But now that you know how important retirement savings are, it’s time to act. Begin to make changes today to save what you can towards your retirement.

The decades of your life: A guide to retirement planning

1. Retirement planning in your 20s and early career

Your 20s are an ideal time to begin planning for retirement, even if it seems far off. During these early years, your greatest asset is time. Here’s how to start:

• Open a retirement account

Begin by opening a retirement account, such as a 401(k) if your employer offers one, or an IRA. Many employers also offer matching contributions, sometimes referred to as ‘free money’ that can act as a significant incentive to save. If you’re still in school and opt for an internship, check if your intern benefits include a 401(k). This can be a great way to get a head start on your retirement savings.

• Automate savings

Set up automatic contributions to your retirement account to ensure you consistently save. Even small amounts add up over time.

• Focus on growth

At this stage, you can afford to take more risks with your investments since you have a longer time horizon to recover from any market downturns. Depending on your appetite for risk, consider investing in a diversified mix of stocks and other growth-oriented assets to maximize your potential returns.

• Work on your financial fluency

Spending more time on developing financial literacy can help you better absorb financial shock, create resilience and improve retirement planning. Start by reading financial books, taking courses, and following reliable financial news sources.

Working with a trusted financial professional can also be invaluable. Ask your parents and peers for recommendations to find an advisor you trust and start building that relationship for the future.

2. Retirement planning in your 30s and mid-career

In your 30s, you may start to see more stability in your career and income, which presents an opportunity to refine and enhance your retirement strategy.

• Increase contributions

As your income grows, aim to increase your retirement savings. A good rule of thumb is to save at least 15% of your income for retirement.

• Diversify investments

Ensure your retirement portfolio is diversified to balance risk and return. Consider consulting a financial professional for guidance. Mutual of Omaha offers comprehensive financial planning services to help you create a balanced investment strategy, manage risk and maximize your retirement savings.

• Pay down debt

While saving for retirement, also focus on paying down high-interest debt, which can significantly impact your long-term financial health.

• Use planning tools

Utilize retirement planning calculators to adjust your savings goals based on changes in income, expenses and retirement age.

3. Retirement planning in your 40s and late career

Your 40s are a critical time to assess your retirement savings and make necessary adjustments to get or stay on track.

• Maximize employer benefits

Ensure you’re taking full advantage of any employer-provided retirement benefits, including matching contributions and profit-sharing plans.

• Reassess goals

Work with a financial advisor to reassess your retirement goals and adjust your savings rate if needed. A financial professional can help you identify your goals, adjust your savings rates, and run simulations to address any concerns you have, such as the increasing costs of your children’s education, caring for aging parents, or adding additional goals.

Mutual of Omaha can provide personalized guidance to ensure you remain on track for a comfortable retirement.

• Plan for healthcare

Start considering healthcare costs in retirement, including Medicare (after 65) and long-term care insurance, which can be a significant expense.

4. Retirement planning in your 50s and pre-retirement

Your 50s are critical for retirement planning. You’re nearing retirement age and it’s time to solidify your plans. Without a plan, you run the risk of not having enough savings to maintain your desired lifestyle during retirement.

• Max out contributions

Increase your retirement contributions to the maximum limits allowed by the IRS. Visit the IRS website to see the current contribution limits for retirement accounts, including 401(k) and IRA catch-up contributions for those over 50.

Maximizing your contributions can significantly boost your retirement savings and take full advantage of tax benefits.

• Catch-up contributions

If you’re behind on your savings goals, take advantage of catch-up contributions allowed in retirement accounts like 401(k)s and IRAs.

• Reduce risk

As you approach retirement, it’s important to review your investment strategy to ensure it aligns with your goals and time horizon. While some may choose to shift towards more stable, income-generating investments, others may still have long-term goals that require maintaining a higher level of risk.

Consult with a financial professional to create a personalized investment plan that balances your risk tolerance and financial objectives. They can help ensure your portfolio is appropriately diversified and aligned with your retirement timeline and other financial goals.

• Plan for Social Security

Educate yourself about Social Security benefits and plan your claiming strategy, as the age at which you claim can significantly affect your retirement income.

• Estimate retirement expenses

Use retirement planning software to estimate your retirement budget and ensure your savings will cover your desired lifestyle.

5. Retirement planning in your 60s and beyond

As you enter your 60s, retirement could be just around the corner. Here, retirement planning shifts from accumulation to distribution. Here’s how to ensure a smooth transition:

• Finalize your retirement date

Determine your exact retirement date and begin planning accordingly. This includes understanding when to start withdrawing from retirement accounts.

• Create a withdrawal strategy

Develop a strategy for withdrawing your retirement savings to minimize taxes and help ensure your money lasts throughout retirement.

• Review health care options

Consider the impact of losing employer-sponsored health coverage when you retire. Explore Medicare or other healthcare solutions that may fit your needs at retirement. Planning for healthcare costs is crucial, as they can be significant during retirement.

• Focus on estate planning

Retirement planning and estate planning are two pillars of a holistic financial plan. Wills, trusts and other estate planning tools can help secure your assets and also create a lasting legacy for your loved ones.

• Stay flexible

Retirement planning doesn’t end once you retire. Continue to review and adjust your plan to accommodate changes in your financial situation or unexpected expenses.

Tools and resources for effective retirement planning

1. Retirement planning calculators and software

A retirement planning calculator can help you project how much you need to save for retirement and whether you’re on track to meet your goals. These calculators take into account factors like your current savings, expected rate of return and retirement age to provide a roadmap for your financial journey.

More comprehensive than calculators, retirement planning software offers detailed analyses and projections. These programs can track multiple investment accounts, model different scenarios and provide personalized advice.

Many of these software options are quite expensive and typically used by financial professionals. Working with an advisor can give you access to these advanced tools and help ensure your retirement plan is robust and tailored to your needs.

2. Social Security website

In addition to a benefits calculator, the Social Security website can help determine the estimated income you might receive at various ages, your ‘full retirement age’ and any other age you’re interested in. You can also estimate benefits based on changes in your future earnings. For instance, if you intend to retire or reduce your workload in the upcoming year, you can specify an average future salary to see how decreased earnings will impact your eventual retirement benefit.

3. Debt calculator

Every dollar you owe reduces your retirement income, so being debt-free is a good goal to have. Online tools can offer you an insight into the amount of debt you have and some may also walk you through steps you can take to help clear your debts.

4. Financial professionals

While online tools, digital platforms and financial software can help in scenario planning, they can fall short of providing the nuanced analysis and personalized advice you need.

You may find it more useful to consult a qualified finance professional to help you manage complex retirement planning decisions and track your progress.

Early retirement planning, better retirement living

Retirement planning is a lifelong journey and if you haven’t already started, the next best time to start is now, no matter your age. The earlier you begin, the more time your money has to grow through the power of compound interest.

Regardless of where you are in your career journey, getting a head start on saving and investing can help enhance your financial security when you retire. Start planning now and give yourself the gift of financial peace of mind in your golden years. At Mutual of Omaha, we’re always available to provide you with the resources you need to help protect your financial future.

Frequently asked questions

Q1: When should I start retirement planning?

It’s best to start as early as possible, ideally in your 20s, to take advantage of compound interest. But, the second best time to start, no matter your age, is now.

Q2: What tools can help with retirement planning?

Use retirement planning calculators, software and spreadsheets to get started with projections and tracking. For a more personalized touch, consider a financial professional who can help tailor a plan specifically to your needs and goals.

Q3: How much should I save for retirement?

This varies, but many experts recommend saving 10-15% of total income earned each year throughout your career.

Q4: What are catch-up contributions?

These are additional contributions allowed for those aged 50 and older above and beyond the IRS contribution limits for those under age 50, to help boost retirement savings. The IRS updates these additional contribution amounts each year.

Q5: How often should I review my retirement plan?

It’s advisable to review your retirement plan at least annually or after significant life changes such as marriage, divorce, the birth of a child, or the death of a loved one, to ensure you’re on track to meet your goals.

Disclosures:

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.