5 actions to help you prepare for retirement

If you’re in your prime earning years, you may be earning more money than you have before, but you also may be dealing with more large-scale expenses, such as paying off your mortgage or saving for your child’s college tuition. Therefore, it’s important to start planning for your own future needs and those of the people you care about. We’ve put together five tips to help you cover your current expenses while still working toward your retirement goals. 

1. Evaluate income and expenses.

Using a budget to identify where your money comes from and control where it’s going can help ensure you’re living a lifestyle you can afford and are on track to meet your savings goals. Plus, understanding your current spending habits can also help you better estimate your spending needs in retirement. 

Once you’ve completed or updated your budget, be conscientious about what you do with any money left over. Make sure your rainy-day fund is large enough to cover three to six months of expenses. You’ll also want to make sure you’re saving enough to meet your financial goals such as retirement, paying for your children’s education or helping provide health care for aging parents.  

2. Max out your retirement contributions.

Retirement may still seem like a lifetime away — but it’s closer than you think. While everyone’s needs are different, a good general rule of thumb is to save 10% to 15% of your income for retirement. You may even want to max out your annual contributions. The IRS is allowing up to $22,500 in contributions to 401(k) plans in 2023, while the limit for individual retirement accounts (IRAs) and Roth IRAs is $6,500.  

If you have a plan through your employer, you can generally contribute to both your employer plan as well as an IRA, but the portion of your IRA contribution that’s deductible from your income taxes may be affected by participation in your workplace plan. There may also be other products and strategies that will allow you to contribute additional amounts on a tax-deferred basis. 

3. Develop a smart investment strategy.

Investing is a pivotal part of your financial strategy. When developing your investment strategy, you’ll want to consider your goals, when you’ll need to access your money and your comfort with risk. For short-term goals, such as saving for a new car or making improvements to your home, you’ll generally want to hold cash and short-term fixed-income investments. For long-term goals, such as retirement or buying a second house, you have the leeway to invest more in high-growth securities — which often carry a higher risk of loss but can also offer higher returns.  

As you get closer to your desired retirement age, you’ll want to begin adjusting the balance between higher-growth and lower-growth assets since there will be progressively less time to rebuild any investment money you may lose due to market volatility. An Edward Jones financial advisor can help you decide on the balance of risk and growth that’s right for you. 

4. Prepare for the unexpected.

Make sure your investment strategy includes contingency plans that prepare you for the unexpected. For example, what would happen to your family if you were suddenly unable to provide for them? How would they replace your income or handle the everyday things you do for them?

5. Keep an eye to the future.

For those who have young children (or will in the near future), now is a great time to start saving for one of their biggest expenses — college. A 529 savings plan can be a  good option for setting aside money for education. These plans can take contributions from anyone and are under the control of the account owner, not the beneficiary, so if the intended beneficiary opts not to go to college, the account owner can usually choose another person. Once you start a 529 plan or any college savings plan, an easy way to increase your savings is to funnel money into it from childcare expenses, such as day care or preschool, once you no longer need them.  

Additionally, as your parents get older, you may need to care for them. If your parents are healthy and active, now is a great time to sit down with them and have some important conversations. If there is a possibility you or your spouse will have to leave the workforce to care for an aging parent, make sure you factor that into your retirement planning.

How Edward Jones can help 

You can make your money count for today and work toward tomorrow. Your financial advisor can help you create a strategy that helps you get where you want to be. Contact your Edward Jones financial advisor today.