When it comes to retirement planning, many Americans might not be doing enough. In fact, in a survey conducted by the Board of Governors of the Federal Reserve System, 28 percent of non-retired adults indicate that they currently have no retirement savings or pension whatsoever.1
So how do you get started? The following are five things that should be on every American's retirement to-do list when it comes to planning for your golden years. Remember, it's never too late!
1. Create a written financial retirement plan
Whether you're in your 30s, 40s, or 50s, you need to put together a written retirement plan - even if it's a basic one. Unfortunately, many people don't put together a retirement plan because they don't know where to start. If you don't want to seek the advice of a financial advisor, then you can start with a basic plan yourself. It can be as easy as estimating what your expenses in retirement will be, and then figuring out where the money will come from to pay those bills.
2. Set up an Individual Retirement Account
Whether it's a traditional IRA or a Roth IRA, these accounts can be an easy way to save more for retirement while providing tax advantages. IRAs are not work retirement plans, so you don't need to go through your employer. IRAs can easily be opened through a broker or bank.
3. Build an emergency fund
In addition to your investment accounts, you should have a liquid emergency fund for readily available cash when you need it. You don't want to be tapping into your retirement account for every unexpected home repair or out-of-pocket health care expense.
4. Rebalance your portfolio
Every year it's a good idea to rebalance and reallocate your investments so you can continue to get the most return for the amount of risk you want to take. For example, the risk tolerance for someone just a few years away from retirement will be much different than for someone with 10 years to go.
5. Max out your retirement accounts
If your employer offers a 401(k) retirement savings plan, contribute all you can. This not only helps you save more for retirement, but it also reduces your taxable income. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate.Start saving for retirement as soon as you start earning income, even if you can't afford much at the beginning. Paying yourself first is the most important habit you can develop if you want to enjoy a financially healthy retirement.
1. Board of Governors of the Federal Reserve System, Report on Economic Well-Being of U.S. Households in 2016, May 2016