Part of our Build your own financial plan series

Photo of someone saving and planning for retirement by creating a retirement plan.

5 steps to creating your retirement plan

Even if it’s a long way off, think about what you want your money to do for you when you retire.

Maybe you want to pay off your mortgage, help your grandkids with college expenses, camp in your 10 favorite national parks, or start a new hobby you haven’t had time for during your working years. If you can picture what you want retirement to look like, it’s easier to plan for it.

Graphic of a thumbtack. Tip: Refresh your memory by looking at retirement-related goals you set when you created your financial plan.

No matter what your goals are, saving and planning now is a smart idea, so let’s walk through five steps to helping you create your retirement plan. (You can use our retirement savings checklist (PDF) to log your numbers as you go.)

1. Find out how much money you may need in retirement.

Here's how you do it: Use our Retirement Wellness Planner, a tool that gives a quick snapshot of how much income you may need in retirement. It also helps identify a surplus or gap.

Just plug in your current annual income, how often you’re paid, your pre-tax contribution to your retirement account (called a “deferral”), current retirement savings, estimated Social Security benefit, current age, and desired retirement age. You can adjust your deferral to see how the numbers change.

This is also when a financial professional can be a big help if you want a customized plan for retirement. To learn more, read how to choose and work with a financial professional.

2. Save. Invest. And save some more.

Most experts say at least 10% of your income (plus employer contributions) should go toward retirement. If you’ve started saving later in life, you may need to bump that up.1

Not possible right now? That’s OK. Save what you can and commit to increasing 1% every year until you can hit the mark. Try to save enough to get your employer’s matching contribution (if they offer one) so you don’t leave money on the table.

Options for saving and investing can include:

The sooner you start, the more potential your money has to grow over time. It’s all about compound earnings—when your money earns more money.

Let’s say you invest $10,000. And you earn 5% over a year.

So now you have $10,500. Over the coming year, you make 5% not just on your initial $10,000 but also on the $500 you earned last year. That’s the benefit of compounding in action.2

Read “When to start investing: 4 signs you're ready” to learn more about the power of compound earnings.

To learn how 401(k)s, traditional and Roth IRAs, and Roth 401(k)s compare, read about retirement savings account options.  

3. Know how Social Security fits in your retirement plan.

Will it be around when you retire? Maybe. Maybe not. Or it could be reduced or replaced by something else. This is what we know about Social Security today:

  • The earliest you can draw Social Security (or spousal benefits) is age 62, but the longer you wait to take it, the more money you’ll generally get.
  • If you're a middle income earner hoping to have 80–100% of your pre-retirement income, you can plan to collect about 40% of that income from Social Security.3
  • If you take Social Security before your full retirement age (currently 67, if you were born in 1960 or later), and you’re working and receiving benefits, there are limits on how much income you can make.
  • Your benefits can be taxed! Up to 85% of your check. It’s a complex formula, so learn all about it on the Social Security web site.

Set up a “my Social Security” account at to get an estimate of your potential future benefits and log the information in the retirement savings checklist (PDF).

Another reason to set up an account is to help protect your personal information. Only one account is permitted per Social Security number and address, so claiming your account is one more way to keep your information secure.

Want to learn more?

4. If you’re short, decide how you’ll make up the difference.

If there's a gap between what you’re saving now and what you may need, you have options. Consider the following.

  • Defer more money into your 401(k) retirement plan, especially if you’re not setting aside enough to get the full company match. Figure out how much it costs per week to put another 1% in your retirement plan. Make it bite-sized and it’s more doable. Then continue to bump your deferral another 1% as you can. A good time to do that is when you get a promotion or raise.
  • Make annual contributions to a traditional Individual Retirement Account (IRA). Like a 401(k), it allows you to invest for the long-term and pay taxes on earnings later.
  • Make catch-up contributions to your 401(k) (if your plan allows) or IRA if you’re age 50 or older.
  • Manage debt so you have more money in your budget for long-term savings. (Wondering how to pay off debt and save for retirement at the same time? Read 5 steps to balance both.)
  • Plan to work longer, if you’re able. Delaying retirement by a year or two could help boost your savings.
  • Work for a significant bump in income and then save it. How? Change jobs, try for a promotion, or turn a side hustle into extra cash flow.
  • Win the lottery. (OK, maybe don’t rely on this one.) 

5. Make a date with your 401(k) plan and IRA once or twice a year.

  • Review your asset allocation plan. Your retirement accounts should match your risk tolerance and goals. Brush up on asset classes and what’s in your retirement plan to better understand your options.
  • Check your progress. Are you saving more? If not, consider changing your deferral, adding money to your IRA, or making a catch-up contribution. (See No. 4 above.)
  • Update beneficiaries on your accounts and keep your contact information current. If you have retirement accounts with Principal, you can log in to make those changes. 

Next steps

  • Need a financial professional to help you figure out your next steps? We’ll help you find one.
  • If you’re interested in starting an IRA or consolidating other accounts into your existing one, call 800-247-8000, ext. 2503 between 7 a.m. and 9 p.m. CT. Not familiar with IRAs? Here’s a refresher.

1 Based on analysis conducted by the Principal Financial Group®, October 2015. The estimate assumes a 40-year span of accumulating savings and the following facts: retirement at age 65; a combined individual and plan sponsor contribution of 12 percent; Social Security providing 40 percent replacement of income; 7 percent annual market returns; 2.5 percent annual inflation; and 3.5 percent annual wage growth over 40 years in the workforce. This estimate is based on a goal of replacing about 85 percent of salary. The assumed rate of return for the analysis is hypothetical and does not guarantee any future returns nor represent the return of any particular investment. Contributions do not take into account the impact of taxes on pre-tax distributions. Individual results will vary. Participants should regularly review their savings progress and post-retirement needs.

2 The assumed rate of return is hypothetical and does not guarantee any future returns nor represent the returns of any particular investment. Amounts do not reflect the impact of taxes on pre-tax distributions. Individual taxpayer circumstances may vary. For illustrative purposes only.

3 Social Security Administration,,

Reference of checklist is not an exhaustive list of what you should do. It and this communication are provided as education only with the understanding that Principal® is not rendering legal, accounting, investment advice, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment, or accounting obligations and requirements.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

The Retirement Wellness Planner information and Retirement Wellness Score are limited only to the inputs and other financial assumptions and is not intended to be a financial plan or investment advice from any company of the Principal Financial Group® or plan sponsor. This calculator only provides education which may be helpful in making personal financial decisions. Responsibility for those decisions is assumed by the participant, not the plan sponsor and not by any member of Principal®. Individual results will vary. Participants should regularly review their savings progress and post-retirement needs.

Increasing your contribution does not guarantee you put yourself in a better spot.

Investing involves risk, including possible loss of principal.

Insurance products and plan administrative services provided through Principal Life Insurance Co. Securities offered through Principal Securities, Inc., 800-547-7754, member SIPC and/or independent broker-dealers. Principal Life, and Principal Securities are members of the Principal Financial Group®, Des Moines, Iowa 50392.