10 Smart Steps to Prepare for Retirement

Retirement may not be top of mind for you right now, and given the global pandemic, the recession, and every other twist 2020 has thrown at us so far, that's totally understandable. But time's not standing still, and saving enough for retirement takes decades, so you should get started as soon as possible.

Here are 10 things everyone should do to prepare for retirement, and some of them you can start on right away, even if you're not able to put away any money for your future quite yet.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

You can't create a retirement plan if you don't know what you want your retirement to look like. Spend some time brainstorming what you'd like to do with your golden years and don't be afraid to think big to start. Is there a trip you've always wanted to take? An expensive hobby item you've always wanted to buy? Put it on the list.

You can always go back and trim your list of retirement plans if you realize your initial idea was too expensive, but you might be surprised at how much you can afford, especially if you start saving while you're young.

ALSO READ: 3 401(k) Moves That Can Help You Retire Rich

Chances are debt isn't part of your ideal retirement picture, so you should aim to get rid of it beforehand, if you can. This is especially true of high-interest debt, like credit card debt, that can get out of control quickly.

Now's a great time to refinance your existing debts because interest rates on loans are so low. Consider refinancing your mortgage, if you have one, or taking out a personal loan to pay off credit card debt.

Healthcare is an important but often overlooked retirement expense. It's impossible to know how healthy you will remain in retirement, so you need to make sure you have adequate health insurance coverage. Medicare will cover quite a bit, but it won't cover everything. Consider investing in a Medicare supplement insurance plan or saving some money in a health savings account (HSA) to cover your out-of-pocket medical expenses.

You should also make your health a priority at every stage of your life, which will hopefully minimize your healthcare costs in retirement. Eat healthy, exercise regularly, and find some healthy ways to reduce your stress. It doesn't hurt to get regular checkups, either, so you can catch health problems early.

Once you've got your retirement goals, you have to build a budget around them. Estimate how much each of your goals will cost and how much you'll spend annually in retirement. You can use your existing budget as a baseline, but understand your spending may change between now and your retirement. Some expenses, like healthcare, might increase, while others, like childcare, might decrease or disappear.

To figure out the total cost of your retirement, multiply your estimated annual retirement expenses by the number of years you expect to live. Plan that you'll live until at least your early 90s unless you have a good reason to think you won't live that long.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

You won't have to cover all of your retirement expenses on your own because Social Security will pay a portion of it. But how much it covers depends in part on when you begin claiming benefits.

You can start claiming as early as 62, but this usually isn't the best starting age if you think you'll live into your mid to late 80s or beyond and want the most money possible. Every month you delay benefits increases the size of your checks, and that can lead to tens or even hundreds of thousands of dollars more over your lifetime. Here's an overview of how the age you begin benefits affects your checks.

ALSO READ: Could This Be the Key to Increasing Retirement Savings?

Your employer-sponsored retirement account is a good place to begin, especially if your company matches some of your contributions. You could also open up an IRA on your own if you don't have access to a 401(k) or other retirement plan through your work.

Think about whether a tax-deferred or Roth retirement account works best for you. Tax-deferred accounts give you a tax break today, but then you must pay taxes on your withdrawals, so it's best for those who think they'll be in a lower tax bracket in retirement than they are in today. Roth retirement accounts don't give you a tax break today but your withdrawals are tax-free, so they're best for those who think they'll be in the same or a higher tax bracket once they retire.

Aim to contribute some of each paycheck to your retirement account. Establishing a habit like this will help keep you on track for your goals. If you're not sure how much you should be saving, use a retirement calculator and the budget you've created to help you estimate.

If you're not able to save as much as you'd like to right now, just save as much as you can and try to increase your contribution rate when you feel you're able to. You may have to adjust your retirement plan if you find you're getting way off track. Consider delaying retirement by a few months or years to give yourself more time to build up your nest egg.

Try cutting back your expenses, if you haven't done so already, to free up more cash you can put toward retirement savings. That doesn't always have to mean giving up things you enjoy, either. It could be as simple as canceling subscriptions you're not using anymore or using coupons when you buy groceries or make a purchase online.

Go through your bank and credit card statements for the last few months and look for areas you can cut costs. You may want to go back up to a year if you have some subscriptions that only renew quarterly or annually.

Check into how much your retirement plan costs you and take steps to lower your fees, if you can. Your plan administrator should be able to provide you with a copy of the fees it charges and you can learn about any fees associated with your investments by checking your prospectus.

If you find you're paying 1% or more of your assets in fees annually, see about moving your money into lower-cost investments, like index funds. You may have to talk to your employer about adding some more affordable options if you're doing most of your saving in an employer-sponsored retirement plan.

ALSO READ: 3 Index Funds to Protect Your Retirement Savings During a Recession

One common withdrawal strategy says you should withdraw 4% of your retirement savings in your first year of retirement and then adjust this amount to keep up with inflation for every year thereafter. But this cookie-cutter rule doesn't account for individual differences in spending. For example, you might want to spend more in the early years of your retirement so you can travel and then your spending may decline when you're older.

Think about how much you plan to withdraw every year and how that will affect your tax bill. If you have tax-deferred and Roth retirement savings, you'll have to decide how much you'd like to withdraw from each type of account. You may want to rely on tax-deferred savings until you start nearing the top of the tax bracket you expect to fall into. Then, switch to Roth savings if you need to spend more so you don't push yourself into the next tax bracket.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

You're never really done with retirement planning, even once you enter retirement. You're always going to have to make some adjustments based on lifestyle changes, unexpected expenses, and investment performance, among other things.

Check in with yourself at least once per year and make small adjustments as necessary to your retirement plan to keep yourself on track. These regular checks will also help you feel more confident about your retirement readiness, which can make your golden years a little more carefree.

The Motley Fool has a disclosure policy.