Retirement planning is anything you do to be in a good financial spot after you retire. Most of the time that means saving money by tucking funds into a normal checking or savings account, but it can also include things like:

  • Regularly putting money in a dedicated investment account or retirement fund with tax advantages and other benefits so that your money grows as you age
  • Setting income targets for your job to make sure you can aggressively save to meet certain goals
  • Establishing distribution plans for your saved income so you don’t deplete it too quickly in your retirement years
  • Creating passive-income-generating activities to create current and future cash flow after you stop working

These days, there are lots of tools you can use to make retirement planning easy, like financial services and advisors, and even employer-sponsored retirement plans that let you “set and forget” your retirement savings.

It’s vital to save for retirement for two reasons:

  • So you don’t outlive your money. Generally speaking, life expectancy is getting longer.
  • So you can maintain the quality of life you want in your retirement.

If you don’t save enough money for retirement, you’ll either need to take up another job or continue working as you get older. Furthermore, failing to save for retirement could mean that you won’t get to stay in the same house, take vacations with your loved ones, or spoil your grandkids.

When to start planning your retirement

Ideally, you should start planning for your retirement once you begin earning regular income or become established in your career field. For a lot of people, that’s in their early-to-mid 20s. But if you’re already a little older than that (or much older), don’t worry! There’s still plenty of time to save.

However, keep in mind that your age and career position could affect the wisest retirement planning strategies. What makes sense as an early 20s single person may not work for a parent in their forties. Whenever you start planning for retirement, be sure to take your life stage into account. We’ll look at some specific retirement planning strategies for your 30s, 40s, and 50s below.

How much money do you need to retire?

The (oftentimes literal) million-dollar question has a simple answer: as much money as you can save.

More practically, a good rule of thumb is that you need to keep bringing in 80% of your pre-retirement income when you retire. That’s a solid guideline because it’s easy to adjust depending on your income and spending habits.

For example, if you make $100,000 per year, you’ll need investments, dividends, and other payments that can give you $80,000 per year for about 20 years to retire comfortably (20 is the average expected retirement span, assuming you retire in your 60s). $80,000 multiplied by 20 years is $1.6 million. So, in this hypothetical, that’s the overall target number.

There are lots of ways to adjust your target, though. For instance, if you downsize by selling a larger property with a higher mortgage and move into a smaller property with a lower mortgage, your retirement income, whatever it happens to be, can afford to be lower as well.

Still, the 80%-of-your-income rule is a good one to plan for, especially if you don’t have any other specific target in mind.