No matter what you plan to do with your time, retirement should be spent pursuing activities you love. But how can you fully embrace the lifestyle while ensuring you have enough money to cover it?

By taking into account your estimated living costs, how soon you want to retire, your risk tolerance, and the power of tax-advantaged accounts, you can design a strategy to fit your personal needs.

Create a financial plan for retirement: 5 steps

Preparing for retirement is a lifelong process that involves regularly evaluating your finances, lifestyle, and goals. A solid, yet flexible financial plan can help to guide your investment strategy along the way. 

1. Pick your retirement age

The United States government sets the full retirement age at 67, which is when you can draw your full Social Security check. However, your ideal retirement age is a completely personal decision.

Whether you’re a Gen Z’er pursuing a FIRE lifestyle (financial independence, retire early), or a baby boomer who isn’t ready to give up working full-time yet, remember that retirement looks different for everyone.

Keep in mind that your finances also play an important role. While retiring younger may sound desirable, it means that you’ll realistically have fewer years to grow your nest egg. If you quit working too early, your savings may be insufficient to support you during retirement. 

Naturally, balancing your desire to retire with your financial ability to support it requires some math. The Quicken retirement calculator makes the number crunching easy. You can estimate and optimize your retirement age to determine the retirement savings required. 

2. Figure out how much income you need

Your retirement age and the income you’ll need to sustain your lifestyle are closely related. The more you save in your working years, the more opportunities you can enjoy later in life. 

Generally, experts recommend planning to spend 80-100% of your pre-retirement income in retirement. But these estimates are generic and, honestly, don’t account for your unique situation. 

It’s your retirement – live it on your terms!

Ask yourself some big questions, like: 

  • What do you want out of retirement? Do you want to experience new cultures or settle down near family? Will you work part-time or even volunteer?
  • What does settling down look like? Will you buy your dream house in Florida or hunker down in an Alaskan cabin?
  • How will you spend your downtime? Maybe you’ve always wanted to learn the piano or get back to your roots with a small farm. Or, you might even want to go back to school!
  • What do you want to achieve before retiring? Do you want to have a family? Pay off your mortgage? Build a business or passive income portfolio?
  • Do you have any special considerations to worry about? Maybe you still have student loan debt to repay. You may also have to plan for supporting an elderly parent or budget for high healthcare expenses.  
  • What typical, regular expenses do you expect? Don’t forget about paying for the necessities, like groceries, transportation, insurance premiums, etc. 

Remember, the answers to these questions can help you realize and unlock your dreams — but, they will also greatly impact how much income you’ll need in retirement. From there, you can build a ground-up estimate of your expenses, factoring in inflation.

3. Figure out how much savings you need

So, how much will you need? It’s often recommended to save 15% of your income for the entirety of your career, usually 40 years. As a goal, you may want to save up 15 to 20 times your gross annual income before retiring. 

But those are just rules of thumb. What you really want to know is how much you’ll need to support your specific lifestyle goals when the time comes. For that, try our retirement calculator.

Using Quicken’s retirement calculator

To get started, plug in your:

  • Current age
  • Gross annual income
  • Current savings
  • Monthly savings goal
  • Expected monthly spending in retirement

From there, you can determine how much you can expect to save by the time you retire — along with how much you’ll need. You can also estimate how much extra you should contribute if you fall short of your goal. 

Planning for your future

Want to run scenarios to see how much you’d need to stash away to retire in 5 years? The calculator can do it! Go ahead and play around with retiring earlier, generating larger returns, and putting away more savings to see the possibilities for your retirement. 

Don’t forget to plug in your other income sources, like your expected Social Security checks, dividends, real restate rental income, and so on. (You’ll find that under the “Retirement (Optional)” tab.) Remember, earning extra income means you’ll have to save less to reach your goals. 

4. Choose your retirement accounts

When choosing which retirement investing avenues you’d like to pursue, it’s important to remember that not all investment accounts are ideal for retirement. In fact, the federal government makes retirement savings easier with special classes of “tax-advantaged” retirement accounts.

401(k)s vs. IRAs

You can own two main types of tax-advantaged retirement accounts: accounts offered through your employer, such as 401(k)s, and individual retirement accounts, or IRAs. 

Depending on where you work, your employer-sponsored accounts may also include 403(b)s, 457s, and Thrift Spending Plans.

So how do these retirement accounts work? After signing up, you deposit a portion of each paycheck into your plan, which is automatically withdrawn on payday — before taxes! Some employers even offer matching contributions, which are usually capped at a maximum amount yearly.

IRAs, on the other hand, are individual accounts that you can open yourself. Some IRAs let you choose your investment assets on your own, while others may use robo-advisors to invest for you based on your goals and finances.

Learn more about 401(k)s versus IRAs here.

Traditional versus Roth accounts

401(k)s and IRAs both come in traditional and Roth varieties, allowing you to choose whether you’d prefer a tax-deferred or tax-free retirement. So what does this mean? 

With a traditional IRA or 401(k), you contribute pre-tax dollars and then pay taxes during retirement. 

With a Roth IRA or 401(k), you contribute after-tax dollars and enjoy tax-free withdrawals in retirement – even on your capital gains.

Learn more about Roth vs traditional accounts here.

5. Select your retirement plan investments

The next step in retirement investing is choosing an investment strategy that makes your retirement savings work for you. While stocks and bonds may comprise the bulk of your portfolio, you can easily diversify with common investment options like:

  • Mutual funds, which pool investor money to purchase an assortment of stocks, bonds, or other assets. Mutual funds may have higher fees than some other options, as they employ a fund manager to make active trades. 
  • Index funds, which offer instant diversification by investing your money into hundreds or thousands of stocks or bonds. They keep costs low by simply purchasing assets tracked by an index, like the S&P 500. 
  • Exchange-traded funds (ETFs), which are accounts that make it easy to diversify your portfolio by investing in a bundle of assets.
  • Target-date funds, which invest in a pre-mixed portfolio that automatically adjusts based on your age and market conditions. 
  • Annuities, which are insurance products that guarantee minimum passive income in retirement. You can purchase annuities with lump-sum or long-term installment payments. 

Depending on your employment situation, you may be able to invest in some of these options through your workplace plan. Or, you might prefer to open an IRA and choose your own assets. 

Consider alternative assets

If you still have 2-3 decades until retirement, you might consider branching out into higher-risk, higher-reward assets to boost your returns. 

For instance, many investors buy rental properties or real-estate-related securities to increase their passive income potential. Some go for even riskier “alternative assets,” like precious metals, commodities (oil, beef, etc.), or cryptocurrencies. 

Try taxable accounts 

If you’ve maxed out your annual retirement contributions or want to explore creative investments, you’ll probably need to open a regular, taxable brokerage account. You won’t enjoy the same tax advantages for retirement, but they generally offer more investment options.

Making it to retirement

Whether you’ve been meticulously saving for retirement or you’re just getting started, there’s no time like the present to refine your strategy. If you really want to kick things up to the next level, you should: 

  • Start early, no matter how small. With time on your side, you can build your savings by consistently investing. Having a longer time horizon for your investments also means you can ride out the ups and downs of the market. 
  • Pay yourself first. Try taking your savings out of your paycheck as soon as you get it, even before you pay your bills. In other words, pay yourself first!
  • Redirect “extra” money into your retirement. Did you get a tax refund? Save half. Earn a raise? Put 75 cents of every new dollar into savings. Pay off your debt? Continue “paying” into your savings. 
  • Keep your emotions in check when investing. It’s easy to grow overconfident during hot markets or panic sell during recessions. But if you don’t manage your emotions, you risk sabotaging your financial security and spending years playing catch-up. 
  • Avoid lifestyle creep. Instead of upgrading to new levels of extravagance with every pay raise, keep your expenses low and focus on savings. No need to keep up with the Joneses!
  • Align your spending with values. Your spending should be meaningful rather than impulse-based. Make sure you consider your long-term goals even when you spend in the short term!

Retirement investing doesn’t happen overnight. To achieve the retirement of your dreams, you’ll have to do some research, plan ahead, and then keep your plan on track. 

After setting up your financial strategy, add all your savings and investment accounts in Quicken so you can easily see your progress toward your retirement goals!