If you haven't started planning for retirement, thinking about it can be overwhelming. If you have started, it can be hard to know if you're doing enough.
One way to help figure out where you stand is by creating a comprehensive, written plan. Not many people have one—about 1 in 5 people do, according to Fidelity Investments' Retirement Mindset Study (PDF).1
It can make sense to get a plan together if you don't have one. When asked how they felt and given the chance to pick multiple answers, people who have a retirement plan in place say that they feel in control (49%), proud (43%), and relieved (30%).2
You don't have to do it all at once. Starting with a single step can be enough—and that includes saving what you can in a retirement account. Here are some factors to consider.
Think about how much money you'll need in retirement
Depending where you are in life, retirement could be very far away or it could be just around the corner. To make your plan a reality, start with an estimate of the amount of money you'll need in retirement. Fidelity has some rules of thumb to help you hone in on the amount that will help you maintain the lifestyle you want in retirement. These rules of thumb are just a starting point. Be sure to factor in your personal circumstances in order to fit the guidelines to your life. Some factors that could influence the numbers include your age, financial situation, and risk tolerance for investing.
One way to roughly estimate the amount you may need to save is with the 10x rule. Fidelity's rule of thumb suggests aiming to save 10 times the salary you will be making by age 67.3 The salary people earn often goes up as they get older, so your retirement savings target would go up too. Having a ballpark figure to aim for can help you decide if your savings are on track or if you need to save a little bit more or less.
Your savings rate, the amount you save from each paycheck, can be another important piece of the puzzle. Try to save 15% of your pre-tax income, which includes any match you may get from your employer. If you cannot save that amount, try to save as much as you can to receive the full employer match.
Read about all 4 of Fidelity’s retirement saving guidelines: Retirement roadmap
It’s important to save for the expenses that you know you’ll need to pay in retirement. But it’s also important to be prepared for the unexpected. Here are 3 important variables that could affect your retirement if you’re not ready for them.
Saving money is vital but it can only take you partway to your retirement goals. Earning a return on your money above the rate of inflation can help supercharge your retirement plan.
Investing for growth could help you get there
An investment strategy, or asset mix, that balances growth potential while managing risk may help you hit your retirement goals. (Risk in this context refers to volatility of returns.) Your mix of investments should reflect your time frame for investing (for instance, the number of years until you retire), your tolerance for risk (how upsetting would temporary market fluctuations be?), and your financial situation—or your ability to invest this money and leave it in the account for decades.
The sample investment mixes below show illustrative blends of stocks, bonds, and short-term investments with different levels of risk and growth potential. If you have a very long time until retirement, that gives investments time to recover from potential downturns, which means you may be able to take more risk.
Risk and return are generally linked: Lower risk investments tend to have relatively lower returns while higher risk investments have the potential for relatively higher returns. That's to compensate investors for the added risk. An investment mix including a combination of relatively higher risk investments, like stocks, and relatively lower risk investments, like bonds, is one way investors aim for higher returns while helping to manage risk.
Build a diversified mix of stocks, bonds, and short-term investments, according to how comfortable you are with market volatility, your overall financial situation, and how long you are investing for. That may provide the potential for the growth you need without taking on more risk than you are comfortable with. But remember: Diversification and asset allocation do not ensure a profit or guarantee against loss.
You don't have to do it yourself—if you don't want to. If you're looking for simplicity, a single-fund option may help you get invested right away with professional management. There are typically 2 types: target date funds (based on an anticipated retirement date) and target allocation funds (based on a risk tolerance and time horizon). Investors or savers who want more personalized attention, or who are navigating a complex financial situation, may benefit from a managed account service.
Read Fidelity Viewpoints on Fidelity.com: The guide to diversification
You're not alone
It sounds like a lot to tackle but you don't have to do it all at once. Saving what you can in a retirement account with an eye toward increasing that amount over time is a great start.
What's more, you're not on your own through the process. The Fidelity Planning & Guidance Center can help you every step of the way, from building your plan to maintaining it over time. It factors in variables like inflation, Social Security, unpredictable markets, and tax considerations to help you develop a strategy for saving and investing.
You'll also get ideas for the next steps you can take to strengthen your financial foundation. After you have a plan, you can monitor it on your own or with the help of a financial advisor. It can be an ongoing process, but taking the first steps toward planning can give you one less thing to worry about.
Next steps to consider
See if you're on track in the Planning & Guidance Center.
Take advantage of potential tax-deferred or tax-free growth.
See how small increases in contributions can add up over time.