How do You Start Planning for Retirement?

Planning for retirement can seem like a big and scary topic. So many people don’t think of planning until it’s nearly too late. Remember, though, that it’s never too late or too early to start planning for retirement. Here’s what you need to know about retirement planning.

First, you need to know that your income needs during retirement will be different from your income needs now. Now you might have kids at home, a mortgage, car payments, credit card payments, and more. Hopefully by the time you retire, you’ll get the kids out of the house and have most of the debts paid off. That said, remember to think about the type of lifestyle you want to have during retirement so you can plan your income needs accordingly.

Key to your retirement planning is understanding compound interest. When it comes to investing for your golden years, you’ll want to stick with conservative options such as a company 401k, a Roth IRA, or mutual fund holdings. You don’t want to risk losing the money you’re working so hard to save for your retirement years. However, if you understand compound interest, you’ll be able to see that even conservative investments can make a huge impact on your retirement years.

Here’s an example of compound interest. Let’s say that between the ages of 25 and 35, you save $25,000 in an account that makes you about 7% interest compounded monthly. Every year past 35, you add just $2,000 to the account. By the time you’re 65, you will have put a total of $85,000 into the account. What will it be worth? Over $400,000. Compound interest is the biggest force you need to know about in your retirement planning!