Retirement Back »

Written by Carrie Johnson (former SDSU Extension Family Resource Management Specialist).

Plan ahead. There's no better time than right now to plan for your retirement. Saving for retirement often gets put off as we deal with life's more pressing demands – marriage, house, children – but each month you delay cuts significantly into the total savings you have when that day comes. Save early. Save often.


Unplanned savings is better than no savings at all. But to get the most out of your retirement savings, you should figure out where you want to be and how you're going to get there. Since people are living longer than ever, retirement savings need to last longer and work harder. It's more important than ever to make smart financial decisions.

Decide on Your Strategy

If you are starting your retirement savings early, you can afford to be aggressive and put money into riskier funds. If your fund loses value, you have time to let it grow again. However, if you're getting close to retirement and suddenly your investments lose 40% of their value, it will have a huge negative impact on your financial comfort in retirement.

Options to consider when saving for retirement include:

Individual Retirement Account (IRA)

An IRA is a retirement account that allows you to save up to a certain amount of money in a tax-deferred account. The annual contribution limit is set by the Federal government, and in 2010 is $5000 for individuals under the age of 50 and $6000 for those who turn 50 by the end of the year. The main benefit of an IRA is that you get a tax deduction for your contributions, so the tax on this money is deferred until you withdraw it from your IRA account. Since your income will probably be lower when you retire, you likely will pay a lower overall tax on this money.

401 (k) plan

A 401(k) plan is a great tool to start saving for retirement. It allows you to take money out of your paycheck before taxes and put it into an investment account. You are not taxed on this money until you take it out of the 401(k) account, hopefully when you retire and are in a lower tax bracket.

Your employer may also provide matching funds, up to a certain percent of your income.  The money your employer contributes to your 401(k) account is not automatically yours until you are "vested." To be vested, you have to stay with the company for a certain length of time according to the schedule your employer determines.


Annuities are financial contracts with an insurance company that provide a regular income at retirement. A deferred annuity allows you to contribute money now for use later. You are not allowed to touch this money until you reach the age of 59 ½. When you reach retirement age, the money you have built up in your annuity will provide you regular income payments throughout your retirement.

Tips on How to Save Smart for Retirement

  • Start now. Don’t wait. Time is critical.
  • Start small, if necessary. Money may be tight, but even small amounts can make a big difference given enough time, the right kind of investments and tax-favored vehicles such as company retirement plans, IRAs, and SEPs.
  • Use automatic deductions from your payroll or your checking account for deposit in mutual funds, IRAs, or other investment vehicles.
  • Save regularly. Make saving for retirement a habit.
  • Be realistic about investment returns. Never assume that a year or two of high market returns will continue indefinitely. The same goes for market declines.
  • If you change jobs, keep your retirement account money in your former employer's plan or roll it over into your new employer's plan or an IRA.
  • Don’t dip into retirement savings.

Top 10 Ways to Prepare for Retirement

Financial security in retirement doesn’t just happen. It takes planning and commitment and, yes, money.

1. Start saving, keep saving, and stick to your goals
If you are already saving, whether for retirement or another goal, keep going! You know that saving is a rewarding habit. If you're not saving, it's time to get started. Start small if you have to and try to increase the amount you save each month. The sooner you start saving, the more time your money has to grow. Make saving for retirement a priority. Devise a plan, stick to it, and set goals. Remember, it's never too early or too late to start saving.

2. Know your retirement needs
Retirement is expensive. Experts estimate that you will need about 70 percent of your preretirement income – lower earners, 90 percent or more – to maintain your standard of living when you stop working. Take charge of your financial future. The key to a secure retirement is to plan ahead.

3. Contribute to your employer’s retirement savings plan
If your employer offers a retirement savings plan, such as a 401(k) plan, sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate. Find out about your plan. For example, how much would you need to contribute to get the full employer contribution and how long would you need to stay in the plan to get that money.

4. Learn about your employer's pension plan
If your employer has a traditional pension plan, check to see if you are covered by the plan and understand how it works. Ask for an individual benefit statement to see what your benefit is worth. Before you change jobs, find out what will happen to your pension benefit. Learn what benefits you may have from a previous employer. Find out if you will be entitled to benefits from your spouse's plan.

5. Consider basic investment principles
How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you'll have saved at retirement. Know how your savings or pension plan is invested. Learn about your plan's investment options and ask questions. Put your savings in different types of investments. By diversifying this way, you are more likely to reduce risk and improve return. Your investment mix may change over time depending on a number of factors such as your age, goals, and financial circumstances. Financial security and knowledge go hand in hand.

6. Don't touch your retirement savings
If you withdraw your retirement savings now, you'll lose principal and interest and you may lose tax benefits or have to pay withdrawal penalties. If you change jobs, leave your savings invested in your current retirement plan, or roll them over to an IRA or your new employer's plan.  Resist the urge to cash out and spend this money.

7. Ask your employer to start a plan
If your employer doesn't offer a retirement plan, suggest that it start one. There are a number of retirement saving plan options available. Your employer may be able to set up a simplified plan that can help both you and your employer.

8. Put money into an Individual Retirement Account
You can put up to $5,000 a year into an Individual Retirement Account (IRA); you can contribute even more if you are 50 or older. You can also start with much less. IRAs also provide tax advantages.
When you open an IRA, you have two options – a traditional IRA or a Roth IRA. The tax treatment of your contributions and withdrawals will depend on which option you select. Also, the after-tax value of your withdrawal will depend on inflation and the type of IRA you choose. IRAs can provide an easy way to save. You can set it up so that an amount is automatically deducted from your checking or savings account and deposited in the IRA.

9. Find out about your Social Security benefits
Social Security pays benefits that are on average equal to about 40 percent of what you earned before retirement. You may be able to estimate your benefit by using the retirement estimator on the Social Security administration website.  For more information, visit their website or call 1-800-772-1213.

10. Ask Questions
While these tips are meant to point you in the right direction, you'll need more information so read publications, talk to your employer, your bank, your union, or a financial adviser. Ask questions and make sure you understand the answers. Get practical advice and act now.


  • Retirement Information for Medicare Beneficiaries: You already are receiving your Medicare benefits. At some point you will need to decide when to start receiving your Social Security retirement benefits. The following information will help in planning for this important decision.
  • Retire online: It’s so easy: Applying for Social Security retirement benefits is easier than ever. Directions are here on how to accomplish this at Retire online.
  • Top ten ways to prepare for retirement: Financial security in retirement doesn’t just happen. It takes planning and commitment and, yes, money.  Putting money away for retirement is a habit we can all live with. Remember, saving matters!

Useful Websites

  • Retirement: Tools & Calculators: A collection of calculators and tools for retirement, including workbooks and research based resources.
  • My Retirement Paycheck: Provides a wealth of information to explore your retirement decisions. Eight aspects of your life work together to make up your retirement paycheck including work, social security, home & mortgage, retirement plans, savings & investing, debt, and fraud.
  • Financial Security: Financial Planning: Has several resources are available at which is part of the Cooperative Extension System. It provides objective and research-based information and learning opportunities that help people improve their lives.
  • Social Security Administration: Provides a lot of information and tools on social security, retirement, disability, SSI, Medicare, and other services. A government site that meets the changing needs of the public.
  • Department of Labor
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