It may seem odd for a personal finance site aimed at young professionals to be posting an article on the topic of planning for retirement. However, I always say that a without a good plan and a destination in mind, you’ll never arrive where you want to end up! Retirement is an interesting one for young professionals to think about. On the one hand, it’s really far away for most of us and not something we really think about. However on the other hand, many of us are saving and preparing for it without even thinking too much about it – through our 401(k)s.

There are probably days that you dream about retirement, more often when things are stressful at work and you conjure up images of just chilling on a beach full-time as a retiree. After enjoying that memory you probably snap out of it and remind yourself to live in the present and enjoy every moment that you have. Retirement is a weird concept to think about for sure. You’ve probably seen it modeled very differently in your own life – with some family members or friends doing it well, and others not doing it so well. In an effort to at least dispel some of the rumors, and maybe present what retirement could (or should) look like for young professionals, let’s explore a few facts, statistics and thoughts about retirement!

When you often retire and how you’ll survive

There are 3 main sources of retirement that you’ll have at your disposal when it comes time for you to stop working. Although some people definitely think they’ll work until they die, the vast majority of us won’t. We’ll either reach a point where we no longer want to work, or will reach a point where we’re unable to work. When that time comes, we’ll need cash to sustain our lifestyle and pay our bills. To do that, we can tap into 3 primary sources: Social Security benefits, 401(k) or pension benefits, or just cash we’ve saved up and set aside in non-tax advantaged accounts.

For Social Security benefits, each paycheck we get you may notice that some pay is withhold for social security taxes. Your employer pays 6.2% and you pay 6.2%. You can access the money, assuming you’ve paid into it for most of your working career. The full retirement age is 66 years and 2 months for people born in 1955 and will raise to 67 for those who were born in 1960 or later in the United States. At that point in time, you can expect to receive a monthly amount of money from the government, and this amount can vary on how old you are when you start taking the money, how long you paid in and how much you earned when you were working and paying the tax. However, the average is around $1,500/month. Who knows what social security will look like when us young professionals retire, but it’s good to have a baseline understanding of what it is now. Pause and consider if $1,500/month would be enough to sustain you.

Presuming that social security benefits are not enough, or you would like to retire with more money, you can then rely and tap into a retirement account, or money set aside to help. Just another ballpark number, in America, a typical retiree needs a ballpark figure of $1.7 million as their fund to live comfortably. Wow. $1.7 million sure seems like a lot to set aside. The good news is that you may not actually need that much, and could live off less depending on your lifestyle. The other piece of good news is that slowly stocking money away while we’re young will (hopefully) see your money grow slowly over time, and thanks to the power of compound interest, it’ll actually grow a lot more than you’d think, and that $1.7M number doesn’t seem as scary.

The importance of starting early

If you are a young professional and you haven’t planned anything for your retirement, you should definitely start soon. The good news is that it’s fairly easy to do, and the government (at least here in the US) will offer you tax benefits to start saving now. Many employers offer a 401(k) and will pull money out of your paycheck automatically, or you can save in an individual retirement account (IRA). You don’t want to end up retiring with your bank balance, stock portfolio or retirement insurance benefits under prepared. Start early, stay consistent and your future self will thank you! Even setting aside a small amount can help in the long run – the important thing is that you’re saving.

Planning your $1.7 million (or a different number)

As you start dreaming or planning for retirement, it’s important to start looking at your own circumstances. First of all, figure out your goals and assess your financial status. You should do a financial analysis so that you’re aware of how much your net worth is and how much your needs will be when you plan to retire. You can also ask a financial advisor to help you come up with a good plan. The more money you save, the better. A good rule of thumb that I follow is aiming to save 15% of your income for retirement. I figure if I do that enough now, things will fall into place later.

Financial freedom is one of the major keys to successful retirement planning. Have a budget that supports your lifestyle now, but also saves and invests for your future lifestyle. A little now, a little later will go a long way! Practically speaking however, this isn’t easy. It takes consistency and self-discipline. Saying ‘no’ now is never easy, and putting away money for a future that isn’t guaranteed and seems far away can be tough to stick too. I’m also a big believer in trying to save as much as you can early on, and then scaling back. There was a time in my younger years (pre-BabyMoneyFinance) that Mrs. Money and I were saving 35% of our income – for retirement and for the more near term future. We knew that wouldn’t be sustainable, and did that for as long as we could!

Thinking about health

There’s a big movement right now towards early retirement. One movement is the “FIRE” movement and stands for financial independence, retire early. Some folks on this plan sacrifice more now and save above 50% of their income. One issue that I see, and that even folks just retiring early may run into is healthcare. Having enough money to live off of is not the only thing you need to consider. Healthcare is both necessary and can be expensive, no matter how healthy you are. For that matter, having insurance is (in my opinion) kind of a necessity, whether you’re retired or not.

In America, you can sign up for a health management plan or Medicare ideally three months before your 65th birthday. However, if you’re younger than 64 years and 9 months, you’re going to have to think about health insurance, which isn’t cheap. Also, healthcare insurance may not cover long-term care or nursing homes, so another thing to think about! The ideal plan for me (who in theory would like to retire early) is to have a job that provides health insurance for life as a retirement benefit after so many years of service (say 20 years), or factor that cost in as you’re considering how much you’ll need.

Dreaming of what to do

Since retirement is permanent separation from work, colleagues, and clients, you also need to consider your plans to make this part of your life worthwhile. It is easy to make a list of activities and vacations if your fund allows you. However, retirement can still be enjoyable even with a limited budget. The list of things you can do is endless, but here are some that you might find interesting, and fulfilling:

• Learn something new. Playing the guitar or piano, fishing, or gardening won’t cost you too much but will be fun to do.

• Join volunteer work. Whether in your community or church, your skills and talents will matter. Doing this will also give you a chance to mingle and make new friends.

• Rekindle. Get in touch with people who are important to you. You can call your college classmates and friends for a reunion or visit relatives.

You can prepare and plan for your golden years even when you’re still young. Hopefully this post gets the wheels turning a little bit and gives you at least a frame of reference for what retirement will be like, how much it’ll cost, and when you can expect it!

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