First Steps in Retirement Planning
A few key steps will put you on the road to a secure retirement.
Start saving now, or step it up a notch. If you’ve never saved for retirement, even saving a small monthly amount is a tremendous step. If you are already contributing to a retirement plan, then increasing the amount you set aside is the goal for you. Where should you put the money? The options below are the logical first choices for most people.
Employer-Sponsored Plan. If your employer offers any kind of match to your contributions, be sure to take advantage of that. The type of plan will vary depending on the nature your employer – the most common types of qualified retirement plans are 401k, 403b, or SIMPLE IRA. Whatever the label, an employer match makes it the right place to start. A 50% employer match means that if you contribute $100/month, your employer will add another $50. What’s more, with a tax-deferred plan, your contribution (or increase) of $100 will reduce your paycheck by only about $80. Bottom line? In this example, by giving up $80 of monthly spending, you gain an investment of $150/month. After 25 years with an 8% return, the result is $142,000 for retirement! Invest more to build an even larger nest egg!
Non-employer options. If you do not have an employer plan, or are already contributing to a plan and want to diversify, an IRA (Individual Retirement Account) is probably your best bet. Any investment instrument (mutual fund, stock portfolio, money market account…) can be designated as an IRA. To learn more about IRAs, including the difference between traditional and Roth IRAs, check out Retirement Investment Options
- PM 1822 (pdf), part of ISU Extension’s
Retirement: Secure Your Dreams series.
Are you self-employed? You face a different set of challenges, and fortunately you have a special set of options from which to choose. Learn more in Special Considerations for the Self-employed: Painting Your Retirement Picture - PM 1823 (pdf), another in the ISU Extension series.
Invest or Save? We often use the word “saving” when we talk about retirement, but the truth is that most people need to invest. That is, they need to put at least part of their retirement funds into instruments that will yield higher returns than bank savings instruments. Why? So the balance stays ahead of inflation, and gives you optimal returns. Choosing investments is challenging, especially for beginners, but it is made easier by a good employer plan, with a finite number of investments to choose from. Begin by reading Growing Your Nest Egg: Risk and Return- PM 1821 (pdf).
“Investing for Your Future” is a comprehensive national Extension resource free on-line at
www.investing.rutgers.edu. A print copy is also available ($16) through your county's ISU Extension Office.
Know What You Need. A critical step in ensuring a rosy retirement is ignored by half of American workers: calculate your retirement needs.
ISU Extension’s Retirement Series offers guidance via three publications:
Another convenient resource is the “Ballpark Estimate of Retirement Needs,” an easy-to-use interactive tool that helps you quickly identify approximately how much you need to save to fund a comfortable retirement. It is also available to print as a two-page worksheet, so you can share it with others.
A note about web-based calculators: you will find many retirement calculators on-line, and many of them are very good. Be wary, however, of calculators with heavy commercial emphasis - in other words, calculators at sites whose goal is to sell you investment products.
In addition, with any calculator, notice what assumptions are made. In some cases, you have the option to set certain variables (such as the rate of inflation, or your rate of investment return, or your age at retirement) according to your personal expectations, while at other sites, those variables will be built in. It is important that you are aware of these variables, since they affect the results of your calculation.
Note: Many of the publications linked on this site are Adobe Acrobat pdf files. For more information about pdf files or to download a free copy of Adobe Acrobat Reader, please consult the pdf help section.