Retirement planning tips can make the difference between a comfortable future and financial stress. Most Americans underestimate how much money they’ll need after they stop working. A 2024 survey by the Employee Benefit Research Institute found that only 37% of workers feel very confident about having enough money for retirement.
The good news? Building a secure financial future doesn’t require a finance degree. It requires consistent action, smart decisions, and a clear strategy. This guide covers the essential retirement planning tips that help people prepare for their post-work years, from saving strategies to healthcare costs and everything in between.
Key Takeaways
- Starting retirement savings early can result in hundreds of thousands more dollars thanks to compound interest—a 25-year-old investing $300 monthly could have $370,000 more than someone starting at 35.
- Always contribute enough to your 401(k) to capture the full employer match, as skipping this means leaving free money on the table.
- Diversify your investment portfolio across stocks, bonds, and other assets, and rebalance annually to manage risk as retirement approaches.
- Plan for healthcare costs separately—a 65-year-old couple may need approximately $315,000 for medical expenses in retirement, and Medicare won’t cover everything.
- Use Health Savings Accounts (HSAs) as powerful retirement planning tools since they offer triple tax advantages for medical expenses.
- Create and test a realistic retirement budget before you stop working to identify gaps between Social Security benefits and your actual spending needs.
Start Saving Early and Consistently
Time is the most powerful tool in retirement planning. The earlier someone starts saving, the more compound interest works in their favor. A person who invests $300 per month starting at age 25 will accumulate significantly more than someone who starts at 35, even if the late starter contributes more money overall.
Here’s a simple example. If a 25-year-old invests $300 monthly with a 7% average annual return, they’ll have approximately $710,000 by age 65. A 35-year-old doing the same thing would end up with around $340,000. That’s a $370,000 difference, just from starting ten years earlier.
Consistency matters as much as timing. Setting up automatic transfers to a retirement account removes the temptation to skip contributions. Many financial experts recommend the “pay yourself first” approach: treat retirement savings like a non-negotiable bill.
For those who started late, all hope isn’t lost. Increasing contribution amounts, delaying retirement by a few years, or working part-time during retirement can help close the gap. The key retirement planning tip here is simple: start now, whatever the amount.
Maximize Employer-Sponsored Retirement Accounts
Employer-sponsored retirement accounts like 401(k)s and 403(b)s offer significant advantages. Many employers match employee contributions up to a certain percentage, essentially free money that boosts retirement savings.
For 2024, employees can contribute up to $23,000 to a 401(k). Workers aged 50 and older can add an extra $7,500 through catch-up contributions. These limits increase periodically, so staying informed about current caps is important.
Not maximizing an employer match is one of the biggest retirement planning mistakes people make. If an employer matches 50% of contributions up to 6% of salary, contributing less than 6% means leaving money on the table. Someone earning $60,000 who only contributes 3% misses out on $900 in free employer contributions each year.
Beyond the match, 401(k) contributions are typically pre-tax. This reduces current taxable income while building retirement wealth. Roth 401(k) options, where contributions are made after-tax, provide tax-free withdrawals in retirement. The right choice depends on whether someone expects to be in a higher or lower tax bracket after retiring.
Reviewing retirement account options annually ensures contributions align with changing financial situations and retirement planning goals.
Diversify Your Investment Portfolio
Putting all retirement savings in one type of investment is risky. A diversified portfolio spreads money across different asset classes, stocks, bonds, real estate, and cash equivalents, to reduce overall risk.
Stocks typically offer higher growth potential but come with more volatility. Bonds provide steadier returns with less dramatic price swings. The right mix depends on age, risk tolerance, and retirement timeline.
A common retirement planning approach uses the “100 minus age” rule. A 30-year-old might put 70% of investments in stocks and 30% in bonds. A 60-year-old might reverse those percentages. While this isn’t a perfect formula, it illustrates how portfolios should generally become more conservative as retirement approaches.
Target-date funds simplify diversification. These funds automatically adjust their asset allocation based on an expected retirement year. Someone planning to retire in 2045 would choose a “Target 2045” fund, which starts aggressive and gradually shifts to conservative investments.
Rebalancing the portfolio annually keeps allocations on track. Market movements can shift the balance, strong stock performance might push equity holdings higher than intended, increasing risk exposure. Regular rebalancing maintains the planned strategy.
Plan for Healthcare Costs in Retirement
Healthcare expenses are one of the largest costs retirees face. Fidelity estimates that a 65-year-old couple retiring in 2024 will need approximately $315,000 to cover healthcare costs throughout retirement. This figure doesn’t include long-term care.
Medicare covers many healthcare expenses for those 65 and older, but it doesn’t cover everything. Dental care, vision, hearing aids, and most long-term care require additional planning and savings.
Health Savings Accounts (HSAs) are valuable retirement planning tools for those with high-deductible health plans. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. After age 65, HSA funds can be used for any expense (though non-medical withdrawals are taxed as regular income).
For 2024, individuals can contribute up to $4,150 to an HSA, and families can contribute up to $8,300. Those 55 and older can add an extra $1,000 catch-up contribution. Building an HSA balance during working years creates a dedicated healthcare fund for retirement.
Long-term care insurance is another consideration. About 70% of people turning 65 today will need some form of long-term care. Policies purchased earlier in life cost less and are easier to qualify for.
Create a Realistic Retirement Budget
A retirement budget provides a clear picture of how much money is actually needed. Many financial planners suggest retirees need 70-80% of their pre-retirement income, but individual circumstances vary widely.
Start by listing expected expenses. Some costs decrease in retirement, commuting, work clothes, and payroll taxes disappear. Others increase, travel, hobbies, and healthcare often cost more. Housing expenses may stay the same or decrease if the mortgage is paid off.
Don’t forget about inflation. Something that costs $1,000 today will cost about $1,800 in 20 years at a 3% annual inflation rate. Retirement planning must account for rising prices over potentially 30+ years.
Social Security provides a foundation but rarely covers all expenses. The average Social Security benefit in 2024 is about $1,900 per month. Knowing the expected benefit amount helps identify the gap that personal savings must fill. The Social Security Administration website provides personalized estimates.
Testing the retirement budget before actually retiring can reveal problems. Spending one year living on the projected retirement income shows whether the numbers work in practice. Adjustments are easier to make while still working.
