How to make 2021 the year you (really) start planning for retirement

Did your savings take a hit last year? Find out how you can make 2021 the year you (really) start planning for retirement.

2020 was a rough year for most of us. Maybe you spent more on food-delivery services than you intended. Perhaps you took time off work due to the quarantine. And, maybe, unfortunately, you lost your job in 2020 and have been struggling to make ends meet.

Almost everyone can agree that their savings goals went out the window in 2020, and retirement is the last achievable thing on their minds. However, as your retirement year looms ever closer, it becomes more and more essential that you begin planning now; it’s time to get back on track.

Read ahead to learn how, in 2021, you can start (actually) planning for retirement.

1) Think about your timeline

The first step when planning for retirement is to determine when you aim to retire.

If you are in your early-to-mid-twenties, it may seem laughable to think about at what age you will retire. For all you know, your retirement could easily be fifty years away. However, establishing an approximate timeline will help you determine how much you should save overall and what amount to set aside each month.

As well as determining a retirement age, you should consider what life events and significant expenses may occur between now and then. Will you get married? Have children, and, eventually, pay their tuition? Move to another state?

Events like these may be challenging to determine if you are in your early twenties, but middle-aged individuals will likely have a clearer picture of how the rest of their careers may look. Think about at what times in your future you will contribute the most money to your savings, and during which periods you will likely withdraw from your portfolio.

Instead of just briefly thinking about retirement and moving on, we suggest writing your thoughts in a secure document. Putting your ideas to paper will help you solidify them in your mind and get the ball rolling, allowing you to develop a concrete plan.

2) Consider your retirement spending habits

Before you can determine how much to save for retirement, you need to think about what your spending will look like once you retire. Many people expect their spending to decrease by 10% to 20% in retirement but fail to realize that some expenses, like healthcare and travel, may increase during their golden years. 

Retirees no longer spend most of their lives at work, so they have more time to spend money on leisure and hobbies. Furthermore, most people can expect to develop health problems as they age, resulting in more of their income going towards medical bills, especially if they no longer receive healthcare benefits from an employer.

One of the largest determining factors of retirement savings is your withdrawal rate once you retire. If you expect your spending to stay the same after you stop working, you should save more now to cover those expenses.

If you’re stressing about expenses and ensuring you have enough available to keep yourself going in retirement, consider consulting a company such as Pacific Retirement Services for advice about your retirement as well as the opportunity to join schemes which may reduce your costs or simplify things for you as you reach retirement age, this can take some of the weight off your shoulders, so you can think less about money and more about how to enjoy your retirement.

If you believe you can decrease spending during retirement, you can theoretically save less money now. However, it is always better to set aside more funds than not enough.

Instead of coming up with a spending amount off the top of your head, you should use a retirement calculator that considers your savings, social security, and pension, helping you set realistic spending goals.

You may also want to follow a spending rule, such as the Four Percent Rule, to ensure that your spending stays within reasonable boundaries. 

3) Start saving

Once you come up with spending goals for retirement, it’s time to figure out how you will meet those goals.

The retirement calculator mentioned above can help you determine a monthly amount to set aside in a retirement savings account. Your money will grow over time through the compound interest it earns. So, the earlier you start saving, the more funds will end up in your portfolio.

To determine a rough estimate of the total amount you should save before you retire, consider this equation:

  1. Begin with the retirement living expenses you determined in the last step. Let’s say you expect your annual costs to be 90% of your current income.
  2. Subtract the percentage of your income you will get from Social Security—45% is a reasonable estimate– from your living expenses.
  3. 90% minus 45% equals  45% of your current income, which you need to have during retirement. If your salary is $50,000, for example, expect to need $22,500 each year after you retire.
  4. The Four Percent and Multiply By 25 Rules encourage retirees to amass enough retirement saving so they can plan to withdraw 4% of their total retirement savings each year, which projects for 25 years (and a bit more since you should earn interest on those savings each year) and also factors in inflation. If your yearly expenses equal $22,500, then multiple by 25 to determine your savings goal. This calculation equals $562,500, which is the total amount you should have available during your retirement. 
  5. Divide this number by the months you have between now and retirement to determine how much you should save each month. In this example, if you have 30 years before you retire, you will need to save $1,562.50 each month to reach your goal.

Your recommended savings amount may feel impossible to achieve, especially if you are in the early stages of your career. If you cannot meet your monthly goals now, don’t fret as you can adjust your contribution later to make up for your shortage.

Remember that your contribution will grow over time, primarily if you utilize a 401(k) or IRA. Your target savings balance will not only come out of your pocket, but it will also consist of employer contributions, investment earnings, and interest.

The most vital step you can take now is to begin setting some money aside each month, even if it is a small amount. Waiting until you have a more stable job or higher income to start saving will only hurt you in the long run.

4) Begin investing your retirement savings

Some people choose to keep their retirement savings in a low-interest savings account. While these accounts will earn you compound interest over time, the rate at which your money increases may not match the rate of inflation. In other words, your savings could decrease in value over time as the cost of living goes up.

Investing in your retirement savings is one of the smartest actions you can take as you plan for your future. Many people utilize one or both of the following investment accounts to grow their retirement portfolios over time.


A 401(k) is an employer-sponsored retirement investment account that many companies offer to their employees.

To take advantage of this account, you will need to set aside a percentage of your income each month towards your retirement savings. Your employer may offer to match your monthly contribution to help your account grow.

The money in your 401(k) will take the form of mutual funds or other investment products that will earn you money over time. You will not have to pay taxes on your contributions until you begin withdrawing them after age 59 ½.


Individual retirement accounts, or IRAs, are retirement investment accounts that you can open independently. Though many IRAs exist, the most popular types are Roth IRAs and traditional IRAs.

Most of these accounts are tax-deductible, so contributing to them reduces your taxable income each year. They also allow you to withdraw your contributions tax-free and penalty-free at any time and withdraw earnings if you meet specific requirements.

Both 401(k)s and IRAs have annual limits on the amount you can contribute, so you cannot put all of your savings into these accounts. However, investing some of your portfolios will grow your savings faster, easing the burden of contributing funds out of pocket.

5) Determine the risk your portfolio can handle

Depending on how big the gap is between now and your retirement, your retirement savings and investments will look different.

Young people—those in their twenties or thirties—can withstand a higher risk to their retirement portfolio. They have more time to make up losses and can afford to invest in stocks that outperform other financial products in the long-term. These individuals should place the majority of investments in risky products, like stocks, to maximize return.

The older you get, the more you should focus on income and preserving your capital. Once you reach middle age, you will have less time to bounce back from volatile stocks or keep money in long-term investments. Instead, you should allocate more savings to less-risky investments, such as bonds or dividend stocks.

Keep in mind that any investment, even a less-volatile one, comes with some risk. It’s important to realize that leaving your money alone for several decades will give you the best chance of your investment becoming profitable.

Take your first step

Reading all of this information at once may feel overwhelming, especially if you have not considered retirement before today. With all of the surprises that 2020 threw your way, developing a concrete retirement plan may seem unrealistic, but it is feasible.

However, most people do not stick to the same retirement plan during their entire career. Plans change as your income and living situation changes. The most important step now is to begin thinking about your future, getting organized, and setting a small amount of money aside each month. The point is to start, knowing you will adjust your plan as time goes on.

2021 can be the year that you get your finances back on track. Take the first step today to begin planning for retirement—the rest will fall into place.

This article was written by Chris Muller, a professional personal finance writer who has written for some of the largest financial publications in the world. 

Chris brings a BBA and MBA in Finance, along with a decade of experience in the field, to help break down complex financial topics into easily digestible pieces through his written content in an effort to assist others in better managing their finances. 

Chris is currently in pursuit of FI/RE, is an aspiring minimalist, loves craft beer, and is a dad two to kids.