Retirement planning is the process of setting financial goals and creating a strategy to achieve them before and during retirement. While it may be difficult to think about retirement, especially early on in your career, planning for it is essential to help ensure financial wellness and comfort during your golden years. 

Whether your goal is early financial independence or simply a comfortable retirement, this guide can help you reach your retirement planning goals while also making time and space for other priorities.

Understanding retirement planning

Retirement planning is one of the most important concepts in financial planning. Let’s talk about what retirement planning is, why it’s important, and the different types of retirement someone might plan for.

What is retirement planning?

Retirement financial planning is the process of determining how much money you will need to live your desired lifestyle when you retire — and then devising a long-term plan to help make sure you accumulate this target amount before your planned retirement date.

Why is retirement planning important?

It was once the case that you’d work for many years at the same job, and then that employer would fund your retirement through a company pension. That’s not the case for most people anymore, so retirement planning falls on the individual.

Retirement planning is important to help prevent running out of money during your retirement. Your plan can help you calculate your level of risk, your necessary rate-of-return on investments, and your portfolio withdrawal strategy.

It may seem like retirement planning can be left until you’re a bit closer to retirement, but that’s far from the truth — it’s essential to get started early. Most people can’t save enough to retire. Instead, compounding does a lot of the heavy lifting. The earlier you start investing, the more time your investments have to compound, giving you a greater chance at a comfortable retirement.

Types of retirement

Many of us have an idea in our heads of what retirement looks like. Maybe it’s moving to Florida when you’ve reached a certain age, or even just having more time to relax and enjoy your hobbies. There are several different types of retirement you might consider.

• Traditional retirement: Traditional retirement means you’ve completely left the workforce for good. You’re able to dedicate that time to the activities you choose. Your retirement savings must last you the rest of your life.
• Semi-retirement: Semi-retirement means that you may still be working part-time in your retirement years. This is a good option if you enjoy your work and want an opportunity to get out of the house and be around others. It also allows you to continue generating income, putting less stress on your savings.
• Temporary retirement: Sometimes called a sabbatical, a temporary retirement is a short period of leisure between careers or jobs. These short breaks can be used for travel or personal pursuits, but may also be used for familial responsibilities. A temporary retirement demands more intricate financial planning but can also help reduce stress and allow you to check items off your personal bucket list now rather than waiting until you’re older and may not be physically able to do so.

Key components of retirement planning

Many people imagine that retirement planning is simply saving a bit of money each month in the hopes it will have grown enough by the time you’re ready to leave the workforce. Instead, this requires you to reflect more intentionally about your future, using several facets of financial planning like goal setting, budgeting and saving, investing, and risk management.

Setting financial goals

One of the most important components of retirement planning is setting financial goals. It’s impossible to create an in-depth retirement plan if you don’t know exactly what you’re planning for. 

When you’re setting goals, make sure they’re SMART: specific, measurable, achievable, relevant, and time-bound. By knowing your final goal, you can work backward to run the numbers and reach savings thresholds to make sure you reach it.

Budgeting and saving

Budgeting and saving are critical for retirement planning. First, once you’ve set your retirement goal, you’ll have an idea of how much you need to save each month to reach that goal. That’s where budgeting comes in because it’s important to make room in your budget to save enough.

Budgeting can feel restrictive, especially if you have to give up other expenses to make room for your retirement savings. Just remember that budgeting can also be freeing — you can give yourself permission to spend on the things you enjoy while also saving for retirement.

Read more: How much should I save for retirement? 

Investment strategy

Another component of retirement planning is your investment strategy. It’s not enough to simply save the right amount each month. It’s also important to decide how you’ll allocate those investments in the best way to try and increase your returns while also mitigating your downside risk. You must consider the type of retirement account you’ll use, as well as the individual investments you’ll purchase, such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

Remember that asset allocation and diversification do not ensure a profit or protect against loss.

Risk management

In addition to growing your wealth, retirement planning requires that you properly protect it using risk management strategies. First, it’s important to consider the various risks you face with retirement planning, including inflation, market volatility, and longevity risk. All of these could result in you running out of money early. One way to combat these risks is through diversification.

You should also consider how to prevent outside factors from impacting your wealth. It’s important to have the proper insurance policies in place, including home insurance, auto insurance, umbrella insurance, disability insurance, long-term care insurance, and life insurance.

Retirement planning strategies by life stage

It’s crucial to start retirement planning early, but the process looks a bit different in each phase of your life: from young adulthood to early middle age, late middle age, and retirement.

Young adulthood (20s to 30s)

While young adults at the beginning of their careers may not have built up a ton of retirement savings, they do have time working in their favor. 

By starting to save for retirement at an early age, young adults can potentially benefit from the power of compounding. Those in young adulthood usually have decades to go until they retire, which typically allows them to assume more risk with their retirement investments. 

For example, a young adult might choose an asset allocation that’s heavily weighted toward riskier investments, such as 80% stocks, 10% bonds, and 10% alternatives. For most households, saving does not necessarily get easier with time, so saving when you are young can create great habits. 

Read more: What is the average asset allocation by age?

Early middle age (40s to 50s)

For many people during this life stage, their income is growing as their career advances — but so are their financial responsibilities. For example, they may have started a family and assumed financial obligations like a mortgage, life insurance, multiple car payments, caring for older family members and all the expenses involved with each lifestyle choice. With competing priorities, it’s important to set specific and attainable goals.

Pre-retirement (Late 50s to early 60s)

The good news is that these are often the peak earning years for many individuals and couples, giving them an opportunity to make a final strong push toward the retirement finish line by maxing out contributions to retirement savings plans. 

So-called “catch-up” retirement plan contributions allow middle-aged individuals and couples to save even more money in their retirement accounts. Individuals 50 years of age or over can contribute an extra $1,000 per year to an IRA or an extra $7,500 to a 401(k), 403(b) or 457 plan. Starting in 2025, people aged 60-63 can contribute $11,250 more to their 401(k) each year through a new increased catch-up provision.

With retirement growing closer, middle-aged people will want to keep a close eye on their asset allocation. There will be less time to make up potential losses in their retirement savings account. It might be smart to begin gradually shifting the asset allocation so there’s less short-term exposure to more volatile investments like stocks and more exposure to investments with less volatility, like bonds and cash alternatives.

This life stage is also the time to work on minimizing or eliminating debt and evaluating your expected retirement income sources so you’re prepared to retire.

Retirement (Late 60s and beyond)

While retirement comes at a different age for everyone, most people have left the workforce by their late 60s. Additionally, 67 is the minimum age for someone to receive their full Social Security benefit if born in 1960 or later (though postponing until 70 allows someone to receive an increased benefit).

During retirement, your primary goal should be following a withdrawal strategy that will help ensure the longevity of your savings while also giving you enough to live on. Ideally, you’ll be combining income from several sources, including Social Security, your retirement accounts, and perhaps an employer pension.

Finally, make sure to monitor and adjust your retirement plan as needed during your retirement years to ensure your savings will last. If you’re unsure about doing this yourself, consider working with a financial planner who specializes in retirement.

Read more: Guide for deciding when to retire

What are the steps in retirement planning?

Retirement planning is a multi-step process that begins years — decades, actually — before you plan to retire. Here’s a step-by-step guide:

Determine your desired retirement lifestyle and timeline

The first step in retirement planning is goal setting. It’s important to envision what retirement looks like for you, and you can do so by asking yourself several important questions, such as: 

• At what age do I want to retire? 
• What kind of lifestyle do I want to live in retirement? 
• How much money will be needed to maintain this lifestyle? 
• What kinds of retirement savings accounts can best help me accumulate this much money, and how does taxation affect those savings? 
• How much money should I contribute to these accounts each month? 
• How should I allocate my investments within these accounts? 

You can use online financial tools to get you on track. For example, the Empower Retirement Planner is an interactive tool that can help you with all aspects of retirement financial planning. Additionally, because of the importance of these questions, you may decide to work with a financial planner to answer them.

Determine retirement spending needs

Setting realistic spending expectations is key to help make sure you have enough money to cover your retirement. An often-cited estimate is that you will need about 70% to 80% of your pre-retirement annual income for a comfortable retirement, but depending on your personal lifestyle you may need more or less.

By aiming for closer to 100% of your pre-retirement expenses, you’ll be more prepared for the rising costs that can come during retirement, which may include healthcare expenses, travel, hobbies, a new home, or paying for your child’s college education. Accurate retirement spending goals help in the planning process as more spending in the future requires additional savings today.

In addition to your lifestyle, you’ll also want to consider the longevity of your retirement portfolio, both in terms of your withdrawal rate and your lifespan. Having an accurate estimate of your likely retirement expenses will be vital because it will affect how much you withdraw each year. Some retirees follow the 4% rule, which suggests that retirees should spend no more than 4% of their retirement savings each year to help ensure a comfortable retirement. The sustainability of this withdrawal rate is determined by portfolio allocation and will differ across retirement plans.

As life expectancy increases, you’ll also need to consider how living a long life could impact your retirement. How much would you need to save to help ensure you won’t outlive your savings? How much would you need in the event of unexpected late-retirement medical costs? What role might life insurance play in your estate planning?

Retirement planning is a multi-step process that evolves over time. You may want to update your retirement plan annually to align with changing circumstances, accounting for early, middle, and late retirement expenses and activities. 

Read more: Retirement income strategies: Get the most out of your retirement

Take healthcare expenses into consideration

Medical expenses present one of the biggest financial challenges for many retirees. Medical costs often increase significantly in someone’s older years, but it’s usually impossible to know exactly how much you’ll need to save. 

Additionally, many people assume Medicare will cover most or even all their healthcare expenses, but that usually isn’t the case. There are monthly premiums associated with certain parts of Medicare, and it covers few, if any, long-term care expenses. As a result, it’s critical to think about how you’ll pay for your medical and long-term care expenses during retirement.

Start planning as soon as possible

As we’ve mentioned, it’s never too early to start retirement planning. The earlier you start investing, the more time your investments have to compound. Additionally, the more years you’re contributing to retirement accounts, the more you’ll be able to contribute overall. Saving a little more over time can add up to big savings – just 1% more into a tax-advantaged retirement account like a 401(k), 403(b), or an IRA could make a noticeable difference.

That being said, it’s also never too late to start. Don’t be discouraged if you’re preparing for retirement a bit later in life — the average age for first-time investors is 33, and many people start even later and are still able to reach their retirement goals.

Choose the best retirement savings accounts for you

An employer-sponsored 401(k) plan is the best option for many people, assuming their employer offers one. These make it easy to save for retirement through automatic payroll contributions each pay period. Also, many employers offer to match employee contributions. For example, an employer might contribute 50 cents for each dollar employees contribute, up to a certain limit. 

Another option is an individual retirement account (IRA), especially if you don’t have access to a 401(k) at work. In 2025, you can contribute up to $7,000 to a traditional or Roth IRA, or $8,000 if you’re 50 years of age or over. You may qualify for a tax deduction with a traditional IRA, which could lower your current taxes. With a Roth IRA, you can make qualified withdrawals tax-free once you reach retirement. 

So, how much should you contribute to your retirement savings accounts? 

Consider contributing at least 15% of your pre-tax income each month to an IRA or 401(k) (up to IRS limits) or a similar type of account. If this isn’t realistic for you right now, that’s OK. Start off by contributing as much as you can and set goals for increasing your monthly contributions over time as your income hopefully rises. 

Read more: What percentage should I contribute to my 401(k)? 

Automate your savings

A common retirement planning challenge is balancing competing financial priorities. To help ensure that retirement remains a top priority, automatically contribute a percentage of your income to your retirement savings account each pay period. This way, you’re not tempted to spend the money on other things that might seem like priorities but really aren’t. 

Utilize technology for retirement planning

Online tools can help you devise a retirement plan for living a financially comfortable retirement. For example, with the Empower Retirement Planner, you can: 

• Run different scenarios in a side-by-side comparison. 
• Review the impact of large expenses on your retirement. 
• Add sources of income to your overall plan. 
• See how your retirement plan would have fared in historic crashes. 
• Get a spending plan for retirement.