From millennials to boomers, what to do now for your retirement

By Dave Rowan

Aug. 4, 2017 6 AM PT

It’s never too early to start planning for retirement, and no matter how old you are, there are steps you can take now to prepare your finances for the kind of retirement you’d like to have.

In your 20s and 30s

If you’re in your 20s and 30s, a lot can change between now and your retirement years. In many cases it’s too early to work with a financial advisor on putting together a formal retirement plan. However, there are things you can and should be doing now, including:

Having an emergency fund of three to six months’ worth of living expenses set aside in a separate bank account.
Grabbing any employer contributions to your 401(k) plan if that’s offered and you’re eligible. You should be saving at least enough to take advantage of this “free” money, and the earlier you start investing, the better. Compound interest allows you to earn on both your original principal and on the interest that adds up over time.
Making sure you have adequate life insurance and disability insurance in place, particularly if you are starting a family. This helps take risks off the table that have the possibility of blowing up your long-term finances.
Developing good investing habits with a well-diversified, long-term portfolio of stocks, bonds and hard assets like real estate and commodities. Avoid trying to time the market or chase hot stocks or investment products.

At this point, you can get a sense of your retirement preparedness by looking at the percentage of your income you are saving. If you’re in your 20s and 30s, consider saving between 10% and 20% of your income. Most people who get an early start will be well prepared for retirement if they consistently save at this rate.

In your 30s and 40s

Once you’ve had some time to accumulate assets, you should start forming your retirement plans. Here’s what you should be thinking about now:

If you’re just getting started, consider upping your savings percentage to 15% to 25% of your income to catch up with those who started earlier.
If you’ve changed jobs at all, you may have one or more old 401(k)s with previous employers. Take the time to open an IRA and roll over these accounts into it. You’ll usually have more and better investment options and pay lower fees. Even a small difference in fees can make a huge difference in your retirement savings, so take this important step on your own or with the help of a financial advisor.
Retirement planning isn’t just about saving money; it’s also about earning money. To improve your earning potential, keep your skills current with continuing education in your field, or learn new skills by picking up additional certifications or another degree. You may even want to consider a midlife career change to boost your income and your ability to save for retirement.

In your 50s and 60s

At this point you can start making more accurate projections of what your retirement finances will look like. For instance, by projecting your final salary and final savings amount (based on your savings rate), you can calculate your “retirement account multiple,” or RAM, which is your retirement savings amount as a multiple of your final salary. For example, if you’ve saved $700,000 for retirement and your final salary is $100,000, you have a RAM of 7.

Based on financial planning researcher and expert Craig Israelsen’s findings, if you have a RAM between 7 and 18, you should have sufficient savings to do the following during retirement:

Withdraw half of your final salary each year to live on.
Increase that amount by 3% every year to account for inflation.
Retire at age 65 with enough money to live on through age 100.

Keep in mind that, like all rules of thumb, this is only a starting point to give you a sense of where you stand with your retirement savings. For instance, if you run the numbers using the method described here and find you have a RAM of less than 7, you should boost the percentage of your income that you’re saving by 1% a year until you catch up on your savings goals. But if you come up with a RAM of more than 18, you can probably ease up on your savings efforts and spend more on the experiences, people and causes that matter most to you in your life.

Many people, especially those who have a RAM of less than 12, should consider working with a qualified financial advisor to develop a formal retirement plan. An advisor can offer guidance on your unique circumstances, not only helping you make the most of what you have, but also helping you avoid costly mistakes with things like investment selection, taxes or Social Security claiming strategies. He or she can also help you determine your annual saving and spending goals and a more concrete target date for retirement. What’s more, working with an advisor provides you with peace of mind in knowing with more certainty that you are on track for retirement.

Start now

Whether you’re early in your career or starting to think about your second act in life, there’s no time like the present to plan for your retirement. Taking action on these suggestions now will give you more options for pursuing your passions and, perhaps more importantly, for savoring important relationships when you do finally decide to retire.

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Dave Rowan is a certified financial planner and the founder of Rowan Financial.