Retirement Planning: A 5 Step Guide on How to Retire in 2024

More than 4.1 million people in the U.S. will turn 65 every year from now through 2027. This is the largest number of people hitting retirement age we’ve ever had. With life expectancies rising and birth rates decreasing, there will be more senior citizens than children by 2034, according to the U.S. Census Bureau. Because of this — and how many fewer retirees have pensions than their predecessors — current retirement systems will feel the strain. 

Add inflation into the mix, and feelings of unease can set in. But setting up a retirement plan and knowing the steps to take ahead of time can make this next chapter in your life less stressful.

 

There are a number of factors that determine when you can retire. One of those factors is your age. You can file for retirement benefits as early as 62 years old. But remember, the earlier you retire, the lower your benefits will be. The later you retire, the higher your benefits will be. Your full retirement age (FRA) is 66 and 6 months for people born in 1957. The FRA is 66 and 8 months for people born in 1958, and 67 if you were born in 1960 or later. Once you hit your FRA, you can collect 100% of your Social Security benefits. 

Another factor of retirement planning that determines when you can retire is employment. Specifically, how long you have been employed. The Social Security taxes that you pay on your earnings go towards credits. These credits then go towards your Social Security benefits. According to AARP, earning $1,730 equals one credit. (Those earnings must be “covered” employment. This means you paid Social Security taxes on that income.) The maximum amount of credits you can earn in one year is four credits. In order to become eligible for benefits, you must acquire 40 credits if you were born in 1929 or later, which works out to 10 years of employment. 

A third retirement plan factor that comes into play is how much money you will need. In order to be comfortable, that amount can be up to 80% of your current annual income. And keep in mind, retirement can last 30 years or even longer. 

All of this, plus inflation, has led to many seniors delaying retirement or becoming “unretired.” Caring conducted a study in June 2024 that found 52% of surveyed seniors returned to work because of inflation. So while you might meet the criteria to retire, you may need to work longer to live a more comfortable lifestyle.

From budgeting to benefits, there are many things you should know about how to retire. Signing up for health insurance and deciding what to spend on groceries are important. But figuring out what your days will consist of without working is significant as well. Use this list to fill out your retirement planner:

• Medicare eligibility and enrollment options: You are eligible for Medicare once you turn 65 (or earlier if you have ALS, End-Stage Renal Disease, or a disability). If you are receiving Social Security benefits at least four months before 65, you’ll get Medicare Part A (which is Hospital Insurance) and Part B (which is Medical Insurance) automatically. If you don’t collect Social Security until you turn 65, then you will need to contact Social Security to sign up. 
• Social Security benefits — when they begin and how to access them: You are eligible for Social Security benefits as early as 62 years old. In order to access them, you need to apply with the Social Security administration. You should apply for benefits about four months before you want to start collecting.  
• Common retirement expenses and what to expect: One of your biggest expenses in retirement will be health care costs. Other expenses can be home maintenance, travel, taxes, daily living expenses, and grandkids. Budgeting for large expenses now can lower stress and worry down the road. 
• The transition from working to retirement and how it might feel: Transitioning to retirement from working all day can be difficult. Caring’s survey found that 27% of the unretired seniors polled returned to their jobs to combat boredom. Before you retire, think about how you will fill your days. Build relationships outside of work, think about what hobbies you’d like to try or continue doing, or consider mentoring or volunteering. 

• Additional things seniors should consider: It’s important to keep on top of your physical and mental health during your retirement years. Schedule preventative exams and stay in touch with family and friends to prevent loneliness. 

• Plan for the unexpected: You may want to budget for caregiving or long-term medical care such as independent living, assisted living, memory care, or nursing home care. A reverse mortgage could come into play here. Long-term care insurance might be something to consider as well. 

There are multiple tasks that need to be completed in order to retire. The following checklist contains key action steps you should take when you are ready for retirement. Want a version to take with you? Download this printable retirement checklist.

• Decide at what age you want to retire. You can use a retirement planner or calculator like this one from AARP. It will help you figure out how much money you will need to comfortably retire. Consider if you want or need to continue working. 
• Apply for Social Security benefits. The Social Security calculation will be determined by your age and how long you have worked. 
• Sign up for Medicare if you are not already enrolled. If you meet the requirements, Medicaid might be a health insurance option. 
• Construct a budget for your expenses. This should include health care, paying down your debts, building an emergency fund, and daily expenses like food. Also, take stock of any investments. 
• Consider how you will spend your days now that you are no longer working. Are there hobbies you’d like to try or places you’d like to travel to? Think about where you might like to volunteer or build social connections. Also think about what ways you might stay physically and mentally active.

According to the U.S. Department of Labor, around just 50% of Americans have figured out how much they need to save for retirement. In 2022, more than 1/4 of private industry workers did not contribute to their 401(k) plans (when available). 

It’s important to start saving money for retirement as soon as possible. But it’s also never too late to start. In addition to signing up for Social Security benefits, taking these additional steps will help set you up for more financial security in retirement. 

Remember, most people need about 80% of their current income when they retire. Create a budget for items like health care, home improvements, travel, and dining out. Plan ahead now. These savings planning worksheets from the Employee Benefits Security Administration can help you manage your finances and develop a savings plan.

Ask questions about any retirement plans that your employer offers. If they have a 401(k) plan, contribute as much as you can. Contributions are not taxed until you start withdrawing the money when you retire. 

Take note if your employer has a 401(k) match program, where you can accumulate even more money for retirement. If your employer offers a pension, see if you are covered and ask how it works. If your spouse has a pension, you may be allowed benefits from their plan. If your employer doesn’t have a retirement plan, ask if they can start one.

There are a variety of ways to invest your money depending on your age, your current financial circumstances, and your financial goals. When you diversify your investments, you can improve the return on your money and often reduce any risks. Also keep in mind that inflation is a major factor in how much you’ll have, and need, during your retirement years.

There are two different types of IRAs. For a traditional IRA, you can contribute if you have taxable compensation. These contributions are deductible. For a Roth IRA, you can contribute if you have taxable compensation and your gross income is below a certain amount. These contributions are not deductible. You are able to put up to $6,500 a year into an IRA. If you are 50 or older, you can put in more.

It’s important to never withdraw money from your retirement savings before you retire. If you do, you will lose principal and interest. You can also lose any tax benefits and may have to pay penalties if you withdraw your money early. 

When you change jobs and have money in a former employer’s retirement plan, you have a few options. You can leave your money in your current plan, roll the money over into an IRA, or move it to a plan with your new employer.

You should calculate your retirement benefits while you’re still part of the work force. The Social Security Administration has an online calculator to help estimate what your Social Security benefits will be. The information needed to estimate your benefits include:

• Date of birth
• Age at retirement
• Annual earnings from every year you’ve worked
• Earnings in the current year
• Earnings you expect to make next year

After entering the information, it will then calculate what your benefits will be per month in retirement. 

Keep taxes in mind, though. According to the Social Security Administration website, about 40% of people will have to pay federal income tax on their social security benefits. This occurs when you make a significant amount of money in addition to your benefits. 

This other income can include earnings made from self-employment, dividends, interest, or other taxable income that is reported on your tax return. You can use this tool on the IRS website to find out if your benefits are taxable.

Planning for retirement can feel overwhelming. But addressing one item at a time can make it more manageable. Start building your retirement fund as soon as you’re able, with any amount you can. Decide when you’ll want to start collecting your benefits and sign up for health care. Consider what you’d like your life to look like in retirement: What hobbies will you have, where will you live, will you have pets? Planning ahead will set you up for an easy and enjoyable transition into this next stage of life.

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