Retirement planning starts when you're young

The earlier you get on it, the better. The rewards can multiply exponentially.

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Tips and to-dos from money guru Jean Chatzky

When you're in the beginning—or even the middle—of your career, thinking about (much less planning for) retirement can be, well, squishy. Who really knows what they're going to want, much less when they're going to want it? But that doesn't mean you shouldn't be planning for, and investing for, your future. After all, you only have this much time on your side once:

Acknowledge competing goals:

Perhaps you want to buy a house—or put a child or three through college. You still have to start socking it away for your future. That's because you can't borrow for your retirement like you can for college. Also, matching dollars and the tax treatment of retirement contributions means you're often leaving "free" money on the table if you don't prioritize your far-off future. Two good rules of thumb to follow: Save 5% of whatever you're earning for your short-term goals (starting with your emergency cushion); and consider investing 15% (including any matching dollars from your employer) for the long-term. And if you're not meeting those thresholds today, don't panic. You can bump up your contributions by 2% a year until you get there.

Automate your savings:

A good way to save for any goal, including your future, is to automate contributions into an account where you're likely to keep your hands off. A workplace savings plan like a 401(k), 403(b), or 457 plan fits the bill. Your employer will enable you to make contributions by deducting the money directly from your paychecks and may match a portion of what you kick in yourself. If you withdraw any money before you hit age 59½ (with certain exceptions) you will face a 10% penalty and have to pay income taxes on the withdrawal. If you don't have an employer-sponsored plan, craft your own with regular, automatic contributions from your paycheck into an IRA, Roth, SEP-IRA, or other tax-advantaged retirement account. Be sure to research different providers of these plans to make sure you're not paying for services you don't need or want. Some firms offer accounts with no opening costs and low-cost investment options. Every dollar saved today for retirement will help you down the road.

Allow nudges to max out (or nudge yourself):

These days, many employers will automatically enroll you in the company retirement plan, and then increase your contribution by a percentage point or two a year until you max out. Consider allowing this to happen. (In other words, don't opt out.)

Figure out your investment strategy:

Review your investments once a year to make sure your asset mix (mix of stocks, bonds, and short-term investments) still lines up with your goals—the movements of the markets can throw your mix out of whack. If you'd rather not deal with this, consider a single-fund solution. There are typically two types of these funds: target date funds (based on an anticipated retirement date) and target allocation funds (based on your risk tolerance and time horizon). You can also look into whether your retirement plan has a managed account offering. Many firms offer online tools to help you determine the best course of action for your needs.

Benchmark your progress:

If you want to replace 45%* of your preretirement income in retirement, and retire at age 67, Fidelity's research shows you should try to hit the following marks. By age 30, save 1× your current salary. By 40, 3×. By 50, 6×. By 60, 8×. And by 67, 10×. Not there? Again, don't panic. But try to increase your retirement contributions each year to make up the difference.

Maximize the use of your health savings account (HSA), if you have one:

Used artfully, an HSA is not just a way to pay for your nonreimbursed medical care during your working life; it's a supplemental retirement account. Contributions can be made with pretax dollars, the money grows tax free and when you use it to pay for health care in retirement (including Medicare premiums), and you don't pay income taxes on the withdrawals. Plus, as with 401(k)s and 403(b)s, you may get "free" money from your employer just for participating.

Chip away at your mortgage:

A paid-down mortgage is another supplemental retirement account, whether you live in the home rent-free or downsize and use the proceeds to beef up your nest egg. Resist the urge to use your home as an ATM through the years.

Don't get bogged down by yesterday:

The biggest financial regret many people have is that they didn't start planning for retirement earlier. Get over it. Then get going. By doing something today, you already put yourself in a better position for tomorrow.

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Investing involves risk, including risk of loss.
This information is intended to be educational and is not tailored to the investment needs of any specific investor.
*The 10× savings rules of thumb are developed assuming age-based asset allocations consistent with the equity glide path of a typical target date retirement fund, a 15% savings rate, a 1.5% constant real wage growth, a retirement age of 67, and a planning age through 92. The replacement annual income target is defined as 45% of preretirement annual income and assumes no pension income. This target is based on Consumer Expenditure Survey 2011 (BLS), Statistics of Income 2011 Tax Stat, IRS 2014 tax brackets, and Social Security Benefit Calculators. Fidelity developed the salary multipliers through multiple market simulations based on historical market data, assuming poor market conditions to support a 90% confidence level of success. These simulations take into account the volatility that a typical target date asset allocation might experience under different market conditions. Volatility of the stocks, bonds, and short-term asset classes is based on the historical annual data from 1926 through the most recent year-end data available from Ibbotson Associates, Inc. Stocks (domestic and foreign) are represented by Ibbotson Associates SBBI S&P 500 Total Return Index, bonds are represented by Ibbotson Associates SBBI U.S. Intermediate Term Government Bonds Total Return Index, and short-term assets are represented by Ibbotson Associates SBBI 30-day U.S. Treasury Bills Total Return Index, respectively. It is not possible to invest directly in an index. All indexes include reinvestment of dividends and interest income. All calculations are purely hypothetical and a suggested salary multiplier is not a guarantee of future results; it does not reflect the return of any particular investment or take into consideration the composition of a participant's particular account. The salary multiplier is intended only to be one source of information that may help you assess your retirement income needs. Remember, past performance is no guarantee of future results. Performance returns for actual investments will generally be reduced by fees or expenses not reflected in these hypothetical calculations. Returns also will generally be reduced by taxes.
Views expressed are as of the date indicated and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author, as applicable, and not necessarily those of Fidelity Investments.
Jean Chatzky is not employed by Fidelity but may receive compensation from Fidelity for her services.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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