5 steps to creating your retirement plan

Even if it’s a long way off, think about what you want your money to do for you when you retire.

Maybe you want to pay off your mortgage, help your grandkids with college expenses, camp in your 10 favorite national parks, or start a new hobby you haven’t had time for during your working years. If you can picture what you want retirement to look like, it’s easier to plan for it.

Tip: Refresh your memory by looking at retirement-related goals you set when you created your financial plan.

No matter what your goals are, saving and planning now is a smart idea, so let’s walk through five steps to helping you create your retirement plan. (You can use our retirement savings checklist (PDF) to log your numbers as you go.)

1. Find out how much money you may need in retirement.

Here’s how you do it: Use our Retirement Wellness Planner, a tool that gives a quick snapshot of how much income you may need in retirement. It also helps identify a surplus or gap.

Just plug in your current annual income, how often you’re paid, your pre-tax contribution to your retirement account (called a “deferral”), current retirement savings, estimated Social Security benefit, current age, and desired retirement age. You can adjust your deferral to see how the numbers change.

This is also when a financial professional can be a big help if you want a customized plan for retirement. To learn more, read how to choose and work with a financial professional.

2. Save. Invest. And save some more.

Most experts say at least 10% of your income (plus employer contributions) should go toward retirement. If you’ve started saving later in life, you may need to bump that up.1

Not possible right now? That’s OK. Save what you can and commit to increasing 1% every year until you can hit the mark. Try to save enough to get your employer’s matching contribution (if they offer one) so you don’t leave money on the table.

Options for saving and investing can include:

The sooner you start, the more potential your money has to grow over time. It’s all about compound earnings—when your money earns more money.

Let’s say you invest $10,000. And you earn 5% over a year.

So now you have $10,500. Over the coming year, you make 5% not just on your initial $10,000 but also on the $500 you earned last year. That’s the benefit of compounding in action.2

Read “When to start investing: 4 signs you’re ready” to learn more about the power of compound earnings.

To learn how 401(k)s, traditional and Roth IRAs, and Roth 401(k)s compare, read about retirement savings account options.

3. Know how Social Security fits in your retirement plan.

Will it be around when you retire? Maybe. Maybe not. Or it could be reduced or replaced by something else. This is what we know about Social Security today:

The earliest you can draw Social Security (or spousal benefits) is age 62, but the longer you wait to take it, the more money you’ll generally get.
If you’re a middle income earner hoping to have 80–100% of your pre-retirement income, you can plan to collect about 40% of that income from Social Security.3
If you take Social Security before your full retirement age (currently 67, if you were born in 1960 or later), and you’re working and receiving benefits, there are limits on how much income you can make.
Your benefits can be taxed! Up to 85% of your check. It’s a complex formula, so learn all about it on the Social Security web site.

Set up a “my Social Security” account at ssa.gov to get an estimate of your potential future benefits and log the information in the retirement savings checklist (PDF).

Another reason to set up an account is to help protect your personal information. Only one account is permitted per Social Security number and address, so claiming your account is one more way to keep your information secure.

Want to learn more?

4. If you’re short, decide how you’ll make up the difference.

If there’s a gap between what you’re saving now and what you may need, you have options. Consider the following.

Defer more money into your 401(k) retirement plan, especially if you’re not setting aside enough to get the full company match. Figure out how much it costs per week to put another 1% in your retirement plan. Make it bite-sized and it’s more doable. Then continue to bump your deferral another 1% as you can. A good time to do that is when you get a promotion or raise.
Make annual contributions to a traditional Individual Retirement Account (IRA).Like a 401(k), it allows you to invest for the long-term and pay taxes on earnings later.
Make catch-up contributions to your 401(k) (if your plan allows) or IRA if you’re age 50 or older.
Manage debt so you have more money in your budget for long-term savings. (Wondering how to pay off debt and save for retirement at the same time? Read 5 steps to balance both.)
Plan to work longer, if you’re able. Delaying retirement by a year or two could help boost your savings.
Work for a significant bump in income and then save it. How? Change jobs, try for a promotion, or turn a side hustle into extra cash flow.
Win the lottery. (OK, maybe don’t rely on this one.)

5. Make a date with your 401(k) plan and IRA once or twice a year.

Review your asset allocation plan. Your retirement accounts should match your risk tolerance and goals. Brush up on asset classes and what’s in your retirement plan to better understand your options.
Check your progress. Are you saving more? If not, consider changing your deferral, adding money to your IRA, or making a catch-up contribution. (See No. 4 above.)
Update beneficiaries on your accounts and keep your contact information current. If you have retirement accounts with Principal, you can log in to make those changes.

Next steps

Need a financial professional to help you figure out your next steps? We’ll help you find one.
Wondering how to save more for retirement? Read 5 smart money tips from super savers.
If you’re interested in starting an IRA or consolidating other accounts into your existing one, call 800-247-8000, ext. 2503 between 7 a.m. and 9 p.m. CT. Not familiar with IRAs? Here’s a refresher.