People often say it’s never too late to start saving for retirement. While that’s true, it’s also never too early to begin saving. The sooner you start, the longer your money can benefit from the power of compounding—and the more flexibility you’ll have later in life. Your future self will thank you.

5 Steps for retirement planning

1. Decide when to start saving

A report from the Milken Institute concluded that young adults need to begin regularly saving for retirement by age 25 to have a nest egg of at least $1 million.

Consider a few scenarios. Say you save $400 a month starting at age 25. At age 65, you’ll have contributed a total of $192,000, and your savings will be worth more than $1.1 million, assuming a 7% annual rate of return.

Now assume you wait until age 35 to save the same amount (with the same return). At age 65, you’ll have contributed $144,000 and saved $490,000—less than half the amount as starting 10 years earlier. Wait 10 more years to start (age 45), and you’ll have contributed $96,000 and saved $209,000.

At the other end of the spectrum: Say you start saving at age 15 (kids can contribute to an IRA as long as they have earned income). By age 65, your contributions will total $240,000, and your nest egg will be worth $2.2 million. This chart shows the different scenarios:

The power of compounding can’t be overemphasized. While it’s never too late to start saving for retirement, the sooner you start, the more time your money will have to grow. As a bonus, the sooner you start, the easier it is to make saving a lifelong habit.

Various bank savings products and accounts will allow you to grow your interest rapidly and can help you in achieving your retirement savings goals.

2. Consider how much money you’ll need to retire

There’s no one-size-fits-all plan for determining how much money you’ll need in retirement. After all, your retirement goals will depend on factors like your life expectancy, spending and saving habits, and lifestyle preferences. Still, two popular guidelines can help point you in the right direction:

• Save 10% to 15% of your pre-tax income each year. You might start by saving 6% per year as a young adult, ramping up 1% per year until you reach that 15% guideline. Higher earners should generally aim beyond 15%.
• The 80% rule. This rule says you’ll need 80% of your pre-retirement income to maintain your current lifestyle when you stop working. Depending on your retirement goals, you might need more or less than 80%.

Online retirement income calculators can be an easy way to determine your savings needs based on inputs you provide, such as your current age, retirement age, annual income, current retirement savings, and the years of retirement income you anticipate needing.

3. Consider retirement plan options

Once you know how much to save, you’ll have to decide where to keep your money. Retirement plans are broadly grouped into four categories: employer-sponsored retirement plans, individual retirement accounts(IRAs), self-employed retirement plans, and pension plans.

Employer-sponsored retirement plans

Many employers offer retirement plans to help employees save for the future, and some include employer-matched contributions. The type of plan depends on where you work. Private, for-profit companies generally offer 401(k) plans, while non-profits, public education institutions, and ministries offer 403(b) plans. Federal government employees and uniformed services personnel have access to the Thrift Savings Plan (TSP), while 457 plans are available to state and local government (and certain non-profit) employees.

Individual retirement accounts (IRAs)

IRAs are available in traditional and Roth versions. The biggest difference is when you get a tax break. With traditional IRAs, you may be able to deduct your contributions the year you make them, but you’ll pay taxes when you withdraw money during retirement. Roth IRAs don’t offer an upfront tax break, but your earnings grow tax-free, and qualified withdrawals in retirement are also tax-free. Online brokerage platforms, such as Robinhood IRA, let you invest money in general investment and retirement accounts, including traditional and Roth IRAs.

Self-employed retirement plans

If you’re self-employed, you have a few options for stashing money for retirement, including a SIMPLE IRA, SEP IRA, and Solo 401(k) plan. SIMPLE IRAs (short for Savings Incentive Match Plan for Employees) are available to companies with 100 or fewer employees, while companies of any size can set up a SEP. A Solo 401(k) covers a business owner with no employees (or the owner and their spouse).

Pension plans

A pension plan is a defined benefit that provides a specified monthly benefit at retirement. Most employers have shifted from traditional pensions to 401(k) plans, so a pension might not be an option. The workers most likely to have one are unionized workers in both the public and private sectors, as well as active-duty military members with at least 20 years of service.

If you have a 401(k) or other retirement plan at work, consider starting there to take advantage of any matching contributions from your employer. Whenever possible, max out your annual contributions to your retirement plans, including 401(k)s and IRAs, to supercharge your retirement savings.

4. Choose investments

Stocks, bonds, and funds form the foundation of many investment portfolios, but you can invest in myriad asset classes, such as:

• Artwork, including shares of fine art from platforms like Masterworks.
• Commodities.
• Cryptocurrencies.
• Options.
• Precious metals.
• Real estate, such as real estate investment trusts (REITs) and crowdfunding platforms like RealtyMogul.
• Stamps, comic books, and other collectibles.

LEARN MORE: Best Long-Term Investments

Your ideal investment mix depends on your goals, risk tolerance, and time horizon. A common approach is to subtract your age from 110 or 120 to figure out how much of your portfolio should be in stocks versus bonds (the starting point used to be 100, but the formula has changed to reflect longer lifespans and rising healthcare costs). So, for example, at age 30, your portfolio might be 80% to 90% stocks and 20% to 30% bonds.

The general idea is to invest in higher risk/higher return investments when you’re younger and better able to weather market fluctuations. As you get closer to retirement, you’ll gradually shift to a more conservative investment mix.

5. Keep saving and rebalance your retirement portfolio as needed

It’s a good idea to check on your retirement plan at least once a year to ensure you’re on track. You may need to rebalance your portfolio to maintain its original allocation. For example, if your portfolio should be 60% stocks and it bumps up to 65%, you can sell some stock or invest in other assets to bring the allocation back to your intended range. Rebalancing happens automatically if you have a online broker or a target-date fund, which gradually shifts to more conservative investments the closer you get to your targeted retirement age.

1. It allows you to take advantage of compound interest. Compound interest means that the money you earn from your investments can earn interest too, creating a snowball effect that can help your money grow more quickly.
2. It helps protect your money from inflation. Inflation is the gradual increase in prices over time. By investing your money, you can protect it from inflation and potentially earn a higher return than what you would earn with a traditional savings account.
3. It gives you a sense of control over your financial future.
4. It allows you to diversify your portfolio. Diversification is the practice of spreading your investments across different types of assets, such as stocks, bonds, and real estate. This helps to reduce your risk by not putting all your eggs in one basket.
5. It allows you to take advantage of tax benefits. Investing in certain types of accounts, such as a 401(k) or IRA, can help you save on taxes and grow your wealth more quickly.
6. Overall, investing is a powerful tool that can help you reach your financial goals and secure a more prosperous future.

1. Track your spending: The first step in creating a budget is to understand where your money is going.
2. Set financial goals: Once you have a clear picture of your spending, you can start setting financial goals. These could be short-term goals like paying off credit card debt or saving for a vacation, or long-term goals like buying a house or funding your retirement.
3. Prioritize your expenses: With your financial goals in mind, you can prioritize your expenses and allocate your income accordingly. This may involve making sacrifices, such as reducing entertainment or dining out expenses.

Budgeting is not about restricting your spending, but about making sure that your spending aligns with your values and goals.”

– Ramit Sethi

As the quote suggests, budgeting is not just about cutting back, but also about making sure that you are using your money in a way that aligns with your values and goals. This means that you should prioritize the things that are important to you and make sure that your budget reflects those priorities.

1. Review your credit report regularly: Reviewing your credit report will help you identify any errors or inaccuracies that could be impacting your score.

2. Make your payments on time: One of the most important factors in determining your credit score is your payment history. Make sure you pay all of your bills on time, every time.
3. Keep your credit utilization low: Another important factor in determining your credit score is your credit utilization ratio, which is the amount of credit you’re using compared to the amount of credit you have available. Try to keep your utilization ratio below 30%.
4. Don’t open too many new credit accounts: Applying for multiple credit cards or loans in a short period of time can negatively impact your credit score.