1. Monitor your expenditures and financial situation.
Understanding your current financial situation is the first step in managing your spending effectively. Whether retirement is decades away or imminent, it’s critical to know where your money is and where it’s going. To make wise decisions, you must monitor your earnings, expenses, assets, and obligations.
2. Clearly define your retirement intentions.
Another crucial component of retirement planning is establishing sensible, achievable savings targets. When determining how much to save for retirement, the 4% rule is often applied. In the first year following retirement, you can comfortably withdraw 4% of your savings, and for the next 30 years or so, you can withdraw the same amount annually, adjusted for inflation.
Increase your annual expenses by 25 to get how much you must save for retirement using the 4% rule. For example, you need to contribute roughly $1 million to fund your expenses if you intend to spend $40,000 annually in retirement.
3. Create an estimate of the cost of medical care.
Health care is one of the most significant expenses of retirement. Even though many things can go wrong, according to Fidelity’s most recent projection, a 65-year-old’s retirement medical expenses are expected to total roughly $ 165,000.²
Opening a health savings account (HSA) is one of the greatest methods to prepare. An HSA offers three tax advantages: tax deductions for contributions, tax-deferred growth, and tax-free withdrawals for authorized authorized medical expenses. Additionally, you won’t be charged if you utilize your withdrawals for approved medical expenses before turning 65.
4. Contribute to your 401(k) as much as you can.
401(k) plans are one of the primary ways that most Americans save for retirement. By the end of 2024, the total value of employer-based defined contribution plans in the United States was $12.4 trillion. 401(k)s accounted for $8.9 trillion of this total.5 These plans often include a company match and allow for significant contributions. Growth is tax-deferred, and contributions are tax-deductible.
Therefore, one of the best methods to save for retirement throughout your working years is to contribute as much as you can to your 401(k) plan. Terry Parham, Jr., MSFP, CFP, co-founder of Innovative Wealth Building, emphasized the importance of grasping the fundamentals to achieve this goal.
5. Create an IRA and fund it.
Your 401(k) may be the most popular retirement savings option, but you have more options with an individual retirement account (IRA). When you move employment, you don’t have to worry about rollovers or vesting dates because IRAs aren’t linked to a job. Additionally, they frequently offer more investment opportunities than most work plans.
Your savings are taxed more evenly if you place your money in a Roth IRA. Because they are funded with after-tax money, Roth IRAs differ from other kinds of accounts. Withdrawals are, therefore, tax-free. Having both types of accounts can reduce your lifetime tax liability with careful preparation.
6. Distribute your resources and revenue streams.
Spreading out your investments is one of the simplest methods to safeguard them and maximize your return on investment. Reducing your risk of losing all your money in one place involves spreading your investments across various asset classes, such as stocks, bonds, and cash equivalents, and adjusting your approach to investing within each category. To reduce your exposure to domestic issues, you could purchase a combination of U.S. and foreign stocks.
This also applies to your sources of income. In addition to helping you earn extra cash while you’re working, having a side gig or small business can shield you from the consequences of losing your employment. It can keep you occupied and help you spend less of your retirement funds if you enjoy it enough to continue doing it after you retire.
7. Set up automatic savings
Maintaining a high savings rate is one of the best strategies to ensure that you meet your retirement objectives. The Financial Independence Retire Early (FIRE) program demonstrates how this can have a significant impact. Many followers stop decades early and save between 75 and 50 per cent of their annual income.
On the other hand, Americans occasionally struggle to save money consistently. For instance, savings rates skyrocketed during the COVID-19 epidemic, peaking at almost 32% in April 2020. Since then, they have fallen back to roughly 4%, which is their typical level.
You can better adhere to your savings goal by establishing automatic transfers to retirement funds. Your boss can even deduct the funds from your paycheck early with a company 401(k), so you don’t have to
8. Create an emergency fund
An emergency fund is a cash reserve set aside to cover unforeseen expenses or prevent job loss in the event of an emergency. If you’re retired and don’t want to withdraw funds from your investments when the market declines, or if you’re employed and suddenly lose your job, having one can be beneficial.
Experts advise keeping three to nine months’ worth of expenses, depending on your level of income stability and risk tolerance. In 2025, the average American household should have about $35,000 in emergency funds, though you can get a more precise figure if you’ve been tracking your expenses.
9. Consider deferring your Social Security benefits.
The stability of Social Security may worry you, yet it remains a significant component of the typical American’s retirement strategy. About 30% of the average family’s expenses may be covered by the average monthly retirement income of $1,948.17 in April 2025.
Although you can begin receiving Social Security as early as age 62, doing so will result in a smaller payout. Waiting until you reach full retirement age, typically between 66 and 67 years old, depending on your birth year, will allow you to receive all of your earned benefits. To receive the most money, however, you still need to wait until you are 70 years old. Until then, each year you wait past your full retirement age boosts your payout by 8%.
However, it’s not always the most excellent course of action to maximize maximize something. You may need to submit your claim more quickly if you require the money to cover essential expenses. Depending on how long you anticipate living, receiving lesser payments earlier may still be more advantageous if you can afford to wait. The temporal worth of money is the reason for this.
10. Consider the annuity.
One kind of insurance that ensures a consistent income stream, typically for life, is an annuity. As you approach retirement, purchasing an annuity can provide stability and peace of mind, particularly if you wish to increase your Social Security or make up for the loss of the defined-benefit plan.
Due to their exorbitant fees, limited cash reserves, and complex contracts, annuities have long had a reputation for being unfavorable. However, factors such as longer life spans, more volatile markets, and higher interest rates are making them increasingly attractive.12 If you choose modern pensions wisely, they can help you maintain a consistent income during unpredictable times.
11. Make an anti-inflation wager
When prices for products and services gradually rise over time, it becomes more difficult to purchase goods and services. This is known as inflation. Everyone may experience hardship, but pensioners, who may rely on partially or entirely fixed incomes, are frequently the most impacted, particularly when inflation exceeds the Federal Reserve’s target of 2% annually.
One of the simplest strategies to guard against inflation is to maintain growth investments, such as equities, in your portfolio after retirement. It’s common to transition to a more conservative portfolio as you age. However, overvaluing consistency can be a costly error.
12. Seek methods to reduce your expenses.
As long as it doesn’t negatively impact your relationships, happiness, or health, reducing expenditure is one of the best strategies to improve your financial situation. It speeds up your retirement and increases your savings at work. You will require less money to maintain your quality of living after you depart.
Rent, transportation, and food are the three expenses that the typical American family spends the most on, so if you want to reduce your expenditure, you should start there. They account for a staggering 63% of all annual consumer purchases.10 “Consumer Expenditures -2023.” Bureau of Labor Statistics, United States.
One of the most significant ways to reduce these expenses is to relocate, particularly if you are no longer employed at the current location. You can significantly reduce your living expenses without sacrificing your quality of life if you pick the correct retirement location.
13. Seek expert assistance as necessary.
Having a financial advisor or tax professional by your side can be highly beneficial when creating retirement plans. They can assist you in finding methods to save money, avoiding costly mistakes, and customizing customizing your financial plan to meet your needs.
However, professional assistance is never free and is not always necessary. Particularly if you engage with a financial advisor who bases their fees on the amount of money they control (AUM), the expenses can rack up quickly.
What Does Retirement Income Mean by the 4% Rule?
According to the 4% rule for retirement income, you can withdraw 4% of your investments in your first year of retirement and then the same amount each year for the next 30 years or so, adjusted for inflation.
What is the Retirement Three-Bucket Plan?
The three-bucket retirement technique involves allocating varying amounts of time for investing in each of the three groups that make up your retirement portfolio. Buckets that are short-term (up to four years), medium-term (four to eight years), and long-term (more than eight years) may fall under this category.
How much does the typical retiree receive from Social Security each month?
The average retirement income at the end of April 2025 was $1,948.17.9.
To put it briefly
It takes effort to achieve a secure retirement with a substantial amount of money. To achieve this, you must plan, invest for the long term, and establish solid financial habits. However, safeguarding your money for the future doesn’t have to be difficult. If you start early, don’t give up, and seek support when needed, you may follow a retirement plan that helps you live the life you want.
