Boost your Retirement Planning in Every Career Stage

Jun 22, 2022

Reading time: 16 Minutes

Retirement savings

Most people understand the importance of saving for retirement but struggle with getting started. The truth is if you put off planning for your retirement, you could be forced to continue working long past the age you'd like to retire.


While you might think receiving Social Security retirement benefits will allow you to stop working, most people don’t receive enough Social Security benefits to cover their bills.


Social Security only replaces a portion of the income you earned before retirement. To continue your current lifestyle, you’ll need income from sources in addition to Social Security.


No matter how old you might be, it's essential to start considering your retirement options and creating a saving and investing plan. To retire someday in good financial shape, you must build wealth through various savings, investments, and retirement accounts.


Because of how compound interest works, the earlier you can start putting money away for retirement, the better. Even if you're older and did not save as a young adult, it is not too late to make some progress.


The following information covers steps to take at different life stages and times before reaching your planned retirement age.


What to Do When You Begin Your Career


Young adulthood is an exciting time. You might have just graduated from college, accepted your first “real” job, or started your own business.


At this point, planning for a retirement that's decades away may not be high on your priority list. However, the more you invest and save in your 20s, the better off you'll be.


This is because of the effects of compound interest. The money you save and invest while you’re young has decades available for compound growth and investment gains.


1. Set Savings Goals and Stick to Them


By the end of your 20s, you should aim to have saved at least an amount equal to one year’s salary. For example, if you make $55,000 per year, you should have saved that same amount by the time you reach age 30.


At a minimum, strive to save at least 10% of your gross annual income. And as soon as you can, bump up your savings to 15%.


2. Take Advantage of a 401(k) Plan


You should also understand the various types of retirement plans available through employment and outside of it.

Many employers offer 401(k) plans and some provide employer contributions or matching. If your employer offers matching on employee contributions up to a certain percentage, contribute at least up to the matching amount. The employer match is free money for you!


For example, if your employer offers an employer match of up to 5% of your contributions, make sure you contribute at least 5% of your salary to receive your employer's matching funds. This means you’re making an automatic 100% return on your investment.


When you're under the age of 50, you can invest up to a maximum of $20,500 in your 401(k) each year as of 2022. Your contributions are also made on a pre-tax basis, so they reduce your taxable income now. However, you will have to pay taxes on your contributions and investment returns when you begin taking distributions in retirement.


3. Consider an IRA (Particularly a Roth IRA When You Are Young)


In addition to an employer's 401(k) plan, there are other types of qualified retirement plans, such as a traditional individual retirement account (IRA) or a Roth IRA. As of 2022, you can invest a maximum annual limit of $6,000 in either a traditional IRA or a Roth IRA when under the age of 50.


The difference between these two types of IRAs is in the treatment of your contributions.


Deposits in Traditional IRAs are made pre-tax, meaning they’re tax-deferred. Like a 401(k), contributions will reduce your taxable income now, but you'll pay taxes when you take distributions in retirement.


On the other hand, Roth IRAs involve after-tax contributions, which can be beneficial when you're young.


At the beginning of your career, you're likely in a lower tax bracket than you will be when you retire. By choosing to make contributions to a Roth IRA and pay taxes now, you can enjoy tax savings when you begin to take distributions from your retirement funds since you won’t be taxed on them then.


4. Learn About Retirement Accounts for Self-Employed People


If you're self-employed or a small business owner, you won't have the option of taking part in an employer-provided 401(k) plan. However, you can take advantage of an IRA.


There are specific types of retirement savings vehicles for self-employed people that allow you to save more than $6,000 per year.


Some of the types of accounts to consider include the following:


  • SEP IRA - Allows you to contribute a maximum of 25% of your income or a maximum of $61,000 per year, whichever is lower, on a tax-deferred basis
  • Solo 401(k) - Allows you to take an elective deferral of up to $20,500 as an employee and 25% of your contribution as your own employer up to a maximum of $61,000 as of 2022
  • SIMPLE IRA - Small business owners can open SIMPLE IRA plans at a much lower cost of set-up and administration than a 401(k) plan. Both the employees and employers can contribute up to a maximum of $14,000 per year for employees under the age of 50 as of 2022, and the employers must match the employees' contributions up to 3%.

5. Consider Being Aggressive with Your Investments


When you’re young, time is on your side. You can handle a greater degree of investment risk because of the years you have until you retire. Because of this, your investment profile can be more aggressive and include a well-diversified portfolio of stocks.


As you grow nearer to retirement, you can gradually adjust your portfolio to make it more conservative. But being too conservative when you're young will only mean missing out on some growth potential you could have otherwise enjoyed.


What to Do as Your Career Progresses:


Once you've set up good savings and investment habits, make adjustments from time to time as you progress in your career.


Whenever you get a raise or receive a bonus, try to continue living with the same standard of living that you did before.


Instead of allowing lifestyle creep to happen, live frugally. Make sure you always live within your means and follow a workable budget.


1. How to Handle Raises


When you get a raise, consider investing the difference between your new salary and your former one. At a minimum, increase your contribution percentage in your 401(k), IRA, or another qualified retirement plan.


For example, if you previously saved 10% of your gross salary when you receive a 3% raise, bump up your contributions to 13%.


2. What to Do When You Switch Jobs


Many people change jobs during adulthood. If you start a new position, don't forget about your 401(k) with your former employer. You should roll over your 401(k) into your new employer-sponsored retirement plan or an IRA so you can keep track of your savings.


Since both a 401(k) and a traditional IRA are tax-deferred, you won't have to pay taxes on the rollover amount. However, you should not withdraw the money. Taking an early withdrawal from a retirement account before you reach age 59 1/2 comes with significant tax consequences.


You'll have to pay taxes on any amount you withdraw, which could bump you into a higher income tax bracket for the year. Early withdrawals also come with a hefty 10% IRS penalty.



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3. Review Your Financial Goals


When you are in your 30s or 40s, you need to remain focused on planning for your retirement.


If you haven't gotten started, make sure to do so as soon as possible. While it may be a stretch, your goal should be to save 20% of your gross salary.


If this is not economically possible, sit down and review your budget so you can find ways to save money. To create a budget, do the following things:


  • Track your expenditures for a month or two
  • Categorize your expenses into distinct categories
  • Identify areas in which you can cut back
  • Devote any savings you make from cutting back to your retirement savings
  • Consider adding a part-time job or side gig to increase your ability to save for a secure retirement


What to Do 20 Years from Retirement


If you're 20 years away from retirement, it’s a good idea to look at your current retirement account balances to get a rough estimate of how much they might grow by the time you reach your desired retirement age.


You can use a free online calculator at to calculate how much you need to save each month to reach your savings goal. This can give you an idea of how you're doing and how much your savings might grow by retirement.


If you haven't started, using a calculator can give you a wake-up call and spur you into action to start cranking up your savings.


Here are some other things to be aware of when you have 20 years left until retirement:


1.  Figure Out How Much You'll Need to Save by Retirement


Generally, you should aim to enjoy a retirement income of around 80% of your pre-retirement salary. For example, if you earn $100,000 per year, you'll want to receive approximately $80,000 per year in retirement income.

You can use the 4% rule to calculate how much you'll need in retirement savings to generate your desired income. Take your desired annual retirement income and divide it by 0.04 to get the total amount you should have in your accounts to generate it.


For example, under the 4% rule, if you want to earn $80,000 per year in retirement income, you will need to have $2 million in retirement savings.


$80,000 / .04 = $2,000,000


Once you have this figure, you can plug it into the calculator listed above to get an idea of how much you need to save to reach your goal.



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2. Avoid Lifestyle Creep


When you are 20 years away from retirement, you are likely in the midst of your prime earning years. Many people who reach this stage of their careers tend to allow lifestyle creep to happen.


You might start thinking about a bigger house, a newer car, and more luxurious vacations as you earn more money. However, these types of purchases can harm your ability to save for the future.


Be clear about your wants and needs and save up for larger purchases. You can still increase your budget in ways that bring you joy without sacrificing your retirement.


3. Adjust Your Portfolio


While you could afford to be aggressive with your portfolio when you were young, adjust it to be a little more conservative when you're 20 years away from retirement.


However, this does not mean you should immediately switch all your investments to minimal risk options.

Instead, increase your blend of lower risk to higher risk investments, so your portfolio carries a moderate rather than aggressive profile.


4. Avoid Overspending for Your Children's College


Remember that your kids will need you to be able to take care of yourself financially when you retire. Don’t fill their college funds with dollars that should be going into your retirement contribution plans.


Keep in mind that without proper planning, you may be asking your kids to chip in for your retirement or health care costs at the same time they'll likely be raising their own families.


Hopefully, you started planning for college when your children were young. Encourage your children to apply to schools where they might qualify for scholarships and other aid so you can keep the price of their education manageable for you and your budget.


What to Do When You Are 10 Years from Retirement


If you're 10 years away from retirement, it’s time to really get yourself in gear. Here are things you may need to do at this stage of retirement planning.


1. Create a Plan


Hopefully, you created a plan for retirement that you've been adjusting as you've grown older. If not, now's the time to make one.


Consider meeting with a certified financial planner or registered investment advisor to help design a plan that allows you to reach your goals by the time you want to quit working.


2. Take Advantage of Catch-Up Contributions


When you're in your 50s, you can take advantage of catch-up contributions. For 401(k) plan participants, you can contribute an additional $6,500 annually for a maximum contribution of $27,000 in 2022.


If you have an IRA, the added catch-up contribution is $1,000 for a total contribution limit of $7,000 per year. Try to max out your contributions if possible.


3. Estimate Your Income in Retirement


When you're 10 years away from retirement, it’s a good time to use an online retirement calculator for an idea of your income during retirement. Plan for your savings to last for a 30-year retirement or your life expectancy, whichever is longer.


You can also get your Social Security retirement benefit estimate by using the SSA's retirement estimator. Once you log in, you can get an idea of your monthly benefit based on your earnings record.


Compare what you might receive if you wait until age 70, wait until you reach full retirement age, or take early retirement. Making this comparison helps you see how taking Social Security retirement at different ages affects your retirement income.


4. Start Downsizing


When you're a decade away from retirement, it’s a suitable time to start downsizing. Doing so can allow you to devote more of your earnings to your retirement savings.


For example, if your kids are grown and out of the house, you might consider moving to a smaller home that costs less in upkeep, property taxes, and utilities.


Downsizing can put you in a better position when you retire and might allow you to quit working on time if your financial situation is questionable.


What to Do Five Years Away from Retirement


When you're five years away from calling it quits, you might feel like you've rounded the bend.


However, there are still some steps to take to protect yourself and reach your retirement goals.


Things you may need to do at this time include:


1. Review your estate plan with your estate planning lawyer

2. Plan for potential long-term care needs

3. Consider Medicaid planning

4. Start creating a retirement budget and be sure to include health care expenses

5. Begin downsizing if you haven't already

6. Continue saving as much money as possible

7. Pay off any debts, so you won't be in debt when you retire


What to Do When Retirement is Two Years Away


When retirement is drawing near, it's time for some serious planning.

Here are some steps to take:


1. Review Your Asset Allocations and Make Necessary Adjustments


At this point, most people want a conservative investment portfolio. This helps preserve as much money as possible in your retirement accounts, so you won't want to take on significant risks. Switching some of your allocations away from stocks into low-risk investments like bonds is one way to accomplish this.


2. Continue Saving


Even though you're two years away from retirement, it's still important to continue saving as much money as possible. The more you can save now, the more comfortable your retirement lifestyle will be.


3. Take Inflation Into Account


Make sure you take inflation into account when planning your retirement. Inflation can seriously eat into your retirement assets because it can make things more expensive.


What to Do When You Are One Year Away from Retirement


When retirement is only a year away, it’s time to take a deep breath and fine tune your retirement budget.


Base your budget on all sources of income you'll receive, such as distributions from retirement accounts, pension plans, and any other income streams, including your anticipated benefits from Social Security, depending on your age and decision to start drawing these funds.


1. Decide When to Take Distributions and in Which Order


If you have several different types of retirement and investment accounts, one task you'll have is deciding when and in what order to take withdrawals in retirement from your various accounts. This can be complicated, so you might need to speak with a financial professional for help.


You must take distributions from your tax-deferred 401(k) and traditional IRA when you reach age 72 (70 ½ if you reached 70 ½ before January 1, 2020). If you have savings in a Roth IRA, you will not have any required minimum distributions (RMDs).


2. Consider Waiting Until Age 70 to Begin Drawing Social Security


Depending on your circumstances, it may make sense to delay drawing Social Security benefits until you reach age 70. While you can start drawing benefits as early as age 62, you'll receive 30% less than if you wait until your full retirement age. If you wait past your full retirement age until you reach age 70, your benefits will increase by 8% per year until then.


3. Keep Yourself Marketable if You Don't Have Enough Savings


If you don't have enough retirement savings, you need to keep yourself marketable. You might be able to partially retire while working as a consultant or part-time employee post-retirement. Make sure to network with others and keep your skills sharp to make up any difference you need in your income.


Final Thoughts on Retirement Planning Through the Years


Planning for retirement is a process that continues throughout adulthood. If you're young, don't put off planning because delaying could come back to haunt you later.


And while it's never too early to start saving, if you're older, it's also never too late to begin. It will likely be harder, yet any money you can save to supplement your Social Security retirement benefits will help.


By taking these steps, you can place yourself in a better position to build a nest egg to enjoy the lifestyle you desire during your golden years.

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