Tips for Retirement Planning

A strong economy, coupled with a rising stock market, provided steady increases in the average 401(k) account between 2010 and 2020. That trend seemed to continue in 2021, however, account balances began to shrink due to market volatility and inflation in 2022. According to a 2022 Fidelity Q3 Retirement Analysis, the average 401(k) balance decreased by 23% from $126,000 in Q3 of 2021 to $97,200. In addition, the average IRA balance went from $136,000 in Q3 2021 to $102,000 in Q3 2022.

Most workers know that there is little that they can do to improve the country's economic performance, and predicting the performance of the stock market is a challenging task. What workers know they can do is to focus on their retirement savings strategy. With the proper focus, your retirement years can be comfortable ones, giving you the opportunity to travel, spend time with your grandchildren or take up new hobbies.

Here are some tips you can follow to boost your odds of a happy retirement and increase your retirement savings.

New workers

Start saving early: It is easy to forget about planning for retirement when you first start working. After all, you have other expenses -- rent, maybe a mortgage, furniture, clothing -- that you need to cover. With that said, those who start saving for retirement early will end up with significantly more money in their retirement years.

Vanguard Group researchers Maria Bruno and Yan Zilbering, in their article Penny Saved, Penny Earned show how important saving early is.

According to their research, investors who saved 6 percent of their salaries in a portfolio split evenly between stocks and bonds starting at age 25 enjoyed a median portfolio balance at retirement of nearly $360,000.

That figure fell to $237,000 for investors who waited until 35 to start investing and $128,000 for those who waited until age 45.

Maximizing the match: If you work for a company that offers a 401(k) program, you need to participate in it. These programs offer a great way to build your retirement savings over time. Maximize your employer's match. If you do not, you'll miss those extra dollars when retirement arrives.

Spend on credit cards wisely: It is easy to borrow money on you credit cards. However, remember, it is not easy to retire comfortably when you are in debt. Begin wise spending habits -- only charge what you can afford to pay back when your next credit card statement arrives -- at a young age.

Middle-age workers

Avoid borrowing money from your retirement accounts: Borrowing money from your retirement accounts is a difficult financial decision. You'll pay sometimes severe tax penalties to withdraw funds early from these accounts. If you remove money from your retirement accounts, these dollars do not get a chance to grow at a compounded rate. You'll end up with far less money at retirement age.

Put retirement before college: It is natural that many parents want to help their children pay for their college educations. However, remember this: Your children can take advantage of student loans and grants to get through college. They then have their entire lives to pay back their college debt. If you spend your retirement dollars to help fund your children's education, though, you'll face the financial consequences once you stop working.

Diversify: The best way to save money for retirement is by creating a diversified portfolio of stocks, bonds, and other savings vehicles. This way, if one savings vehicle suffers -- the stock market crashes, for instance -- your other investments will remain strong. Too many investors put all their dollars into one type of investment either incurring too much risk or not enough.

Nearing retirement age

Factor in medical expenses: Many people think they'll remain healthy throughout their retirement years. This often doesn't happen, and not planning for medical expenses can prove to be costly. Fidelity estimated that most retirees should expect to pay roughly $315,000 in medical costs during their retirement years.

Plan for a long life spans: We are living longer today. That is good news. However, it also means that you'll want to save more money for retirement. Don't think that your retirement will be a relatively short one. If you leave work at age 66, you might have 30 years of retirement living to fund.

Retire when it's right for you: Full Social Security benefits kick in at age 66.The longer you put off retiring, though, the higher your annual benefits will be. If you can keep working, it makes financial sense to push off retirement as long as possible.

Retirement

Watch your withdrawals': Once you retire, be cautious of withdrawing too many dollars from your retirement savings too early. Financial planners advise that retirees follow the 4 percent rule: Only withdraw 4 percent of your retirement savings each year.