Every month this year, CommonWealth One has been bringing you tips and actionable steps you can take to improve your financial wellness.

This month, we have a question: Have you started planning for retirement?

Whether retirement is on the horizon or decades away, it's never too late (or too early!) to start planning. Like all long-term savings goals, retirement should ideally be planned for as much in advance as possible. That’s because the more time you allow your savings to grow, the bigger the nest egg you’ll be rewarded with when it’s time to cash in on your funds.

Here’s how to get started on planning your retirement, no matter what decade you're in.

Set a target number

Before you start putting away money for the future, determine how much you’ll need to have saved for living comfortably and independently throughout retirement. Experts recommend taking your current monthly living expenses and multiplying that number by 400 to reach the amount you’ll need for sustaining yourself based on a 4% return.

Choose your retirement accounts

Next, you’ll need to select a place to keep your retirement savings. There are many options to consider, some of which you may already have if you are employed. Here’s a quick review of the two most common retirement accounts:

1. 401(k) - If you’re currently or previously employed, you may already have a 401(k) that’s collecting money for your retirement, and investing it so it can have an opportunity to grow. Take advantage of this retirement tool by maximizing your contributions. Additionally, many employers will match a portion of, or all, your contributions, which is literally free money that will help your investments grow, tax-deferred.

2. IRA - An Individual Retirement Account (IRA) is a retirement fund that allows your money to grow, tax-deferred. Like with a 401(k), some employers will match a portion of, or all, contributions. However, there are federal limits on how much you can add to your IRA annually. You can choose between a conventional IRA or a Roth IRA. A conventional IRA lets your money grow tax-deferred, but withdrawals are taxable. A Roth IRA does not feature tax-deferred growth, but qualified withdrawals are not taxed. There are, of course, many other options and investment strategies. For more information about those, make an appointment to sit down with a CommonWealth One financial advisor, who can give you helpful, practical (and free) advice.

After you’ve identified the retirement fund strategy that best works for your goals, you’ll also need to choose somewhere to invest the money. Low-risk investment vehicles, such as federal bonds or trust funds, are usually the best choice.

Select a target date fund

If you are saving for retirement through the use of a 401(k), be sure to check if your employer offers a target date fund. This refers to your planned retirement date. You’ll know your employer offers a target date fund if there’s a calendar year in the name of the fund, such as “B.K. Holdings Retirement 2055 Fund”. Simply determine an estimated guess of the year you intend to retire, and then pick the fund with the date closest to your anticipated retirement date.

A target date fund is a smart choice because it spreads the money in your 401(k) across many asset classes, such as large company stocks, small-company stocks, bonds and emerging-markets stocks. Then, as you near the target date, the fund becomes more conservative, owning less stocks and more bonds, automatically reducing your risks as you near the date of your retirement.

With a bit of work and a lot of planning, you’ll have your future secured in the best way possible!

Looking for more personalized retirement planning advice? Contact us to set up a complimentary consultation with CommonWealth One Financial Network Financial Advisor Timothy States. He would be happy to answer any questions you may have regarding investment and retirement planning.