Diversification does not ensure a profit or protect against a loss. Investments in bonds are subject to interest rate, credit, and inflation risk. A type of investment with characteristics of both mutual funds and individual stocks.

As the cost of living in retirement rises over time, your benefit should increase as well, meaning it’s smart to delay your payments as long as possible to maximize their overall value. You probably reassess your monthly budget yearly (or more frequently). Your retirement savings deserve the same attention, even if you’re just making sure your address and beneficiaries are up to date. That check-in also gives you an opportunity to consolidate older retirement accounts into an individual retirement account. Once you reach your full retirement age, you can begin receiving your full Social Security benefit. If you delay your benefit until reaching this age, you may also get delayed retirement credits, which increase the amount you receive.

Retirement investment account types in a nutshell

Estimate market returns at a conservative 6% per year, even if historically market returns have been higher. Saving in organized retirement accounts is just one type of saving, but there are many more options.

With a workplace retirement plan, you’re generally able to have a portion of your paycheck deposited into your retirement account automatically each pay cycle. The most important part of any savings or retirement plan is simply to start. You will make mistakes along the way, and sooner or later, you will see the value of some (if not all) of your holdings decline. What is important is that you keep saving, learning, and looking to build wealth for the future. While any amount of savings is a good start, small amounts of money are not going to produce livable amounts of income in the future. This means that it makes very little sense to invest in fixed-income or other conservative investments at the beginning. Similarly, you don’t want to invest that initial savings in the riskiest areas of the market, so avoid the riskiest areas of the market—no biotech, no bitcoin, no gold, no leveraged funds, and so on.

Most of these online accounts will allow you to automatically deduct a set amount every month from your regular account. If your employer offers a 401(k) program, you can have deductions made automatically from every paycheck. Unless you are independently wealthy, setting aside money today to see that you have enough for the years down the road by starting a retirement fund is not an option—it’s mandatory. You can follow these same steps for any other retirement goal number and for any rate of return or length of time. Knowing how much money you’ll need to have saved up before you enter retirement can help give you an idea of how much you should be putting away right now in order to reach that goal.

These can affect how much you need to save today, depending on which sources of income are available to you. Understanding what you expect retirement to look like will help determine how much you’ll need in order to fund that lifestyle. If you plan to travel the world in luxury, your budget will be a bit different than someone who just wants to birdwatch from the backyard each morning. Understand the difference between what you absolutely need to pay for—food, housing, healthcare—and more discretionary “wants”—like vacations, cars, and eating out. Read more about 403b vs 401k here. Most people’s incomes will drop in retirement, and you may have to reassess your expectations and habits to ensure that you won’t run out of money.

Put college savings in perspective

If you have the financial wiggle room to save a bit more, you may want to shoot for that annual savings goal of 15% to give yourself extra spending power in your later years. That would mean setting aside 10% of your income ($5,000 per year), which translates to about $416 per month. Paired with your employer’s 5% match, you’ll be able to put away 15% of your income for retirement.

Your retirement savings plan
will follow; driven primarily by what you have saved to date and what you can save going forward each month. Don’t forget to factor in any pensions or social security payments that you will be entitled to receive during retirement. Benchmarks are based on a target multiple at retirement age and a savings trajectory over time consistent with that target and the savings rate needed to achieve it. Household income grows at 5% until age 45 and 3% (the assumed inflation rate) thereafter.

For example, if you earn $50,000 per year, it’s a good idea to put around $7,500 per year toward your retirement savings. In this example the goal would be to end up with $40,000 in savings for every year spent in retirement. If you haven’t tackled that before, a resource like the Principal® Retirement Wellness Planner may be a good place to start. The first year you retire, the rule suggests you can withdraw up to 4% of your retirement savings. Then in the second year, you withdraw the 4% plus a cost-of-living adjustment, which is equal to the rate of inflation. This adjustment is made in each additional year and is added to the previous year’s withdrawal.