Is your money going to run out in retirement?  If you don’t plan ahead you could face some financial challenges in retirement. The best way to make sure you have money for the long-term to live the life you want to lead in retirement is to get an early start by setting goals and creating a saving and investing plan that will help you achieve those goals. If you’re getting a late start, don’t lose hope. There are ways you can make up some ground.

Start Early

The earlier you start, the less money you’ll need to invest to reach your financial goals. And, there’s a great feature that really helps build wealth. Through the power of compounding, you can earn interest on the money you save and on the interest that money earns. You can watch your money grow over time even if you only put a small amount of money into savings right now.

Set Goals

Consider the lifestyle you want to lead. Here are some important questions to ask yourself as you plan your retirement:

• Have you thought about major living expenses related to housing, healthcare, food, clothing, and transportation?
• Do you like to spend money at will or are you the type of person who always lives within a budget?
•  What types of leisure activities and hobbies do you hope to pursue in retirement?

Make a Plan

Now that you’ve considered your lifestyle and goals, it’s time to make a plan. Investor.gov has free financial planning tools and resources that can help. It’s saving and investing roadmap and Savings Goal Calculator can help guide you as you create a plan that helps you reach your goals. Whenever you’re creating a plan, it’s important to consider your risk tolerance, investment options, fees/costs involved in investing, your debt, and keeping money into an emergency fund.

Contribute to Your Employer’s Retirement Accounts

Contribute to your employer’s retirement accounts, such as a 401(k), 403(b) or 457(b) plan. Most importantly, if your employer contributes to these accounts, take full advantage of these matching funds. Suppose, your employer contributes 50 cents for every dollar you save up to five percent of your salary. If you make $50,000 a year, and contribute at least $2,500 to these accounts, your employer will add an extra $1,250 to that amount. That’s an immediate 50 percent return. Take advantage of the “free money” as no other investment will give you that kind of guaranteed return. Also, start your own Roth or a traditional IRA.

Make Up Ground

If you’re getting a later start, there are ways you can make up some ground. If you’re over 50, you can consider contributing more to your workplace and individual retirement plans. The IRS allows investors to contribute $22,500 per year to a workplace retirement plan, like a 401(k), but will allow you to make an additional $7,500 in “catch-up” contributions if you are over the age of 50. Similarly, you can contribute $6,500 per year to an IRA that you set up yourself, but investors over 50 can contribute an additional $1,000 per year. 

Enough Money

Starting early, setting goals, creating a diversified plan for the long term, making regular contributions to your retirement accounts, and sticking to your plan all adds up to helping to make sure you have enough money in your retirement to live the life you want to lead.

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Teaching Suggestions:

• Have students suggest actions that can be taken at different stages of the adult cycle to have financially successful retirement.
• Ask students to create a list of non-financial actions that a person can take to plan for a fulfilling retirement.
• Create a list of factors that influence the spending patterns of retired individuals.

Discussion Questions:

1. What financial and personal difficulties are associated with inadequate retirement planning?
2. Why is an IRA still beneficial for retirement planning even for individuals who may not qualify for the contribution deduction?