Retirement. Financial freedom. Freetirement. Whatever you call it — “it” being that blissful state of having enough money to quit work and do what you want — our aim with this retirement planning guide is to help you achieve it.
Each chapter in NerdWallet’s Guide to Retirement Planning is a plain-language explainer on how to build, grow and manage your money. As we walk you through the retirement planning process, you’ll see tips and tricks throughout to help you get the job done. You’ll even get to play with our retirement spending simulator that shows you how much money you’ll have available to spend per month during your freetirement.
A complete guide to planning for retirement
If all you’ve ever done to plan for retirement is dream about which beach you’ll be spending it on, you’re not alone. According to the 2017 Retirement Confidence Survey from the Employee Benefit Research Institute, only 4 in 10 workers say that they and/or their spouse have ever tried to figure out how much money they need to save for retirement. But planning for retirement is a key part of saving enough money to enjoy retirement.
In just a few minutes, you’ll be part of that in-the-know minority.
Right out of the gate we tackle the first three steps to savings success (one of which involves checking for any free money coming your way). And since retirement is probably not your only savings goal, in this chapter we’ll tell you how to prioritize all the other things on your list, like knocking out lingering debt and saving for homes, cars, vacations and lattes.
Retirement planning isn’t just about figuring out the right amount of money to save — it’s also about finding the right place to save it. You’ll learn how to choose the best investment account among the alphabet soup of choices. Plus, we’ll help you calculate how much you need to save for retirement — no math required!
There’s saving (amassing money) and then there’s investing (making it multiply). We’ll show you the difference and why cash is not always king. This is the chapter that covers investing basics — the rewards and risks, which investments are inherently diversified, what “diversification” (and other fancy Wall Street terms) even means and why time is an investor’s secret weapon. Plus, you can play with our calculator, which will show you exactly how much money not investing is costing you.
Ready to put your retirement saving dollars to work? Assembling a portfolio doesn’t have to be complicated. Learn the key retirement investing rules of thumb. Then we’ll ask you a simple question: Are you the DIY type or do you prefer to hire an expert? If you want to manage your retirement savings on your own, we’ll show you how to do it with just a handful of low-cost mutual funds. Those who prefer professional guidance will get the lowdown on how to get help and what it will cost.
Investing for retirement doesn’t start and end in one sitting. It evolves alongside you as you change jobs, add to your family tree, endure stock market ups and downs and get closer to your retirement due date. But that doesn’t mean your investments require constant babysitting: We’ll share easy ways to manage your money and protect your wealth over the long haul.
Retirement planning FAQs
When should I start planning for retirement?
In a word, now. In three words, in your 20s. The earlier you start planning, the more time your money has to grow.
That said, it’s never too late to start planning. Even if you haven’t so much as considered retirement, don’t feel like your ship has sailed. Every dollar you can save now will be much appreciated later. Strategically invest — which we’ll show you how to do in this guide — and you won’t be playing catch-up for long.
Should I save for retirement if I don’t have an emergency fund?
Lots of people have financial goals they feel are more pressing than retirement, like paying down credit card or student loan debt or building up an emergency fund. The first chapter of this guide deals with juggling multiple financial goals — setting them, prioritizing them and keeping them.
But to answer your question in abridged form: Generally, yes, you should save for retirement at the same time you’re building your emergency fund — especially if you have an employer retirement plan that matches any portion of your contributions.
What’s the best way to plan for retirement?
The cornerstones of retirement planning are determining how much money to save and where to save it. (Chapter 2 walks you through these steps in detail.)
The question of where to save is pretty straightforward: If you have a 401(k) or other employer retirement plan with matching dollars, start there. (If you don’t have a workplace retirement plan, you can open your own retirement account — we’ll show you how.) As for how much to save? Let our retirement calculator crunch the numbers for you.
What’s the best retirement plan?
There is no single best retirement plan, but there is likely a best retirement plan — or combination of retirement accounts — for you. In general, the best plans provide the tax advantages for your tax situation, and, if available, an additional savings incentive, such as matching contributions. In most cases, a 401(k) with employer match is the best place to start.
If you don’t have access to a workplace plan (or one with a match), or you’re already contributing to a 401(k) and you’re looking for the best options for additional retirement savings, consider an IRA. This is a plan you open yourself at an online broker or other account provider. An IRA is hardly a consolation prize. We go into more detail about retirement accounts like 401(k)s and Roth and traditional IRAs in Chapter 2.
What’s the first step in planning for retirement?
The first retirement planning step is figuring out how much money you need for retirement — that estimate is based on your current income and expenses, and how you think those expenses will change in retirement. Throughout the guide, we’ll show you how to go through the exercise of estimating your retirement needs and determining how much you should be saving now.
How do I invest for retirement?
Retirement accounts provide access to a range of investments, including stocks, bonds and mutual funds. Determining the right mix of investments depends on how long you have until you need the money and how comfortable you are with risk.
Generally, you want to invest aggressively in stocks when you’re young, and then slowly dial back to a more conservative mix of investments as you approach retirement age. That’s because early on you have a lot of time for your money to weather market fluctuations — a few bad years won’t ruin you, and your nest egg will benefit greatly from the stock market’s history of long-term growth.
In Chapter 3 and Chapter 4, we explain your investment options and show you how to build a retirement portfolio.
When can I retire?
There are a lot of layers to this question. The earliest you can start claiming Social Security benefits is age 62. However, by filing early you’ll sacrifice a portion of your benefits. If you were born in 1960 or later, full retirement age (which is also full Social Security benefits age) is 67. And your benefit…