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Senior Finances

How to Set Retirement Savings Goals in Three Steps

Setting savings goals is a crucial aspect of financial planning for retirement. These goals serve as mileposts on our path to retirement and ensure that we stay on track to get where we need to be. Sometimes, though, these goals can feel arbitrary, like pulling numbers out of thin air. How much money do you really need to save for retirement? What retirement savings goals should you accomplish while you’re still earning a salary?

While the answers to questions such as these may seem arbitrary, the truth is that they have very real, useful answers. To help you out, here are specifics on some of the savings goals that should be part of your financial planning for retirement.

Get out of Debt (And Stay That Way)

laptop computer with words debt free on screen

Your first and foremost goal when planning for retirement should be to get completely out of debt so that you can start saving. You see, debt works exactly the opposite of investing your money in quality stocks. Rather than having your money grow and compound, debt causes the money you owe to grow and compound.

It’s essential, therefore, to pay off any outstanding debt that you have. Make it your No. 1 goal, even above investment strategies. Just as important, once you get out of debt, stay that way. Resist the temptation to go back in debt unless you absolutely cannot avoid it.

If this is an issue in your life, you can read more about getting out of debt in this article.

Determine How Much You Need to Save

woman with calculator and stacks of coins

Determining how much money you need to save is often one of the most confusing parts of setting retirement savings goals. This is largely because there isn’t one set number. For example, some people live perfectly comfortable on $20,000 a year or less. Others may not be able to afford the lifestyle they have become accustomed to unless they have much more.

  1. Start by determining how much money you need each year post-retirement to live the life you want to live.
  1. Once you have that number, take the age you want to retire at and subtract it from 100.

Yes, 100 years may seem pretty old, but people are living longer and longer. It’s better to plan for a long life rather than risk running out of money because you lived longer than you expected. Worst-case scenario: You have a lot of money left over to leave your heirs.

  1. Once you have those two figures (your desired yearly income and the years you expect to be in retirement), multiply them together.
  1. The resulting number should be your goal for how much you want to save.

Track Your Progress

Once you have set your retirement savings goals, such as getting out of debt and determining how much to save, start working toward them and keep track of your progress. Learn how to invest in a way that will grow your wealth, and track the progress of those investments. (I cover how much to save, spend and invest when starting out in my article here.)

Over time, if done right, you’ll be able to meet your retirement savings goals and set yourself up for a comfortable, enjoyable life after work.

couple in chairs on beach celebrating

Related articles:

Long-Term Care Costs: 2017 Update

4 Easy Retirement Tips for Seniors

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