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Research: Writing a Business Plan Makes Your Startup More Likely to Succeed

• Francis J. Greene
• Christian Hopp

It’s particularly important if you plan to raise money.

When asked about an opponent’s plan for their impending fight, former world heavyweight champion Mike Tyson once said: “everyone has a plan until they get punched in the mouth.” It is a school of thought now fashionable in entrepreneurship circles. The truth, though, is that we just don’t know if it pays to plan. For every study that shows that it does, another study comes along and says that start-ups should just learn by doing. We wanted to study entrepreneurial planning, but with more context than previous efforts. We found that it pays to plan. Entrepreneurs who write formal plans are 16% more likely to achieve viability than the otherwise identical non-planning entrepreneurs. More than that, we were also able to see what makes people write business plans in the first place.

When asked about an opponent’s plan for their impending fight, former world heavyweight champion Mike Tyson once said: “Everyone has a plan until they get punched in the mouth.”

• FG Francis J. Greene is Chair in Entrepreneurship in the University of Edinburgh Business School.
• CH Christian Hopp is Chair in Technology Entrepreneurship in the TIME Research Area, the Faculty of Business and Economics, RWTH Aachen University.

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Open Access

Ten Simple Rules for Starting a Company

Affiliation Salix Management Consultants Ltd, London, United Kingdom

* E-mail: [email protected]

Affiliations Department of Pharmacology, University of California San Diego, La Jolla, California, United States of America, Skaggs School of Pharmacy and Pharmaceutical Sciences, University of California San Diego, La Jolla, California, United States of America

• Anthony C. Fletcher, 
• Philip E. Bourne

Published: March 29, 2012

• https://doi.org/10.1371/journal.pcbi.1002439
• Reader Comments

Citation: Fletcher AC, Bourne PE (2012) Ten Simple Rules for Starting a Company. PLoS Comput Biol 8(3): e1002439. https://doi.org/10.1371/journal.pcbi.1002439

Copyright: © 2012 Fletcher, Bourne. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Funding: The authors received no specific funding for this article.

Competing interests: The authors have declared that no competing interests exist.

Philip E. Bourne is Editor-in-Chief of PLoS Computational Biology .

Many faculty, staff, and students at academic institutions think about starting companies at some point in their careers. As academic funding models change, and how academia views entrepreneurial activity changes, starting companies is likely to happen more frequently. Hence, it is worth considering Ten Simple Rules to contemplate when starting a company while in academia. There is a wealth of general information out there to help you, but that information is not aimed specifically towards computational biologists. What follows is a hybrid that is intended as a general quick review for anyone, intermingled with some specific advice for computational biologists.

By way of experience, we should say we have been involved in starting several companies: both in the biomedical sciences, dealing with biological software, computational biology services, and currently SciVee Inc. ( http://www.scivee.tv ) distributing scientific rich media, and outside it, ranging from the distribution of independent films, to a socially oriented dining club aimed at supporting local businesses, to a business supplying art quality photographic prints. None have been a great financial success, but all have been immense fun, an opportunity to meet interesting people, and an opportunity to think quite differently than when doing scientific research. Read that as a personal endorsement to go for it, even if starting a company is not yet a well-formed idea, and even though, as you will see below, the rules themselves might be cautionary and off-putting.

Rule 1: A Great Product or Service Alone Is Not Enough to Make a Successful Business

This is a general rule of business. Very rarely is a product alone unique and desirable enough to make a successful business, even though the majority of academic founders tend to think so at the beginning. To misquote Ralph Waldo Emerson, “Make a better mousetrap and the world will beat a path to your door” is perhaps one of the most misleading axioms ever circulated. It is useful to continuously remind oneself that at least nine out of ten companies fail: indeed, most VCs (venture capitalists) will tell you that most business ideas they see should be canned before they ever reach the business plan stage, let alone before serious money is spent on development. Success comes from a huge amount of hard work, extensive market research, a realistic business model, and, above all, the application of good all-around business skills to all aspects of the business. For example, if you are great at sales but poor at money management, your business will certainly fail. Notwithstanding, in one sense the process of starting a business is not that different from academic research (replace business plan by grant and think about current grant funding levels), but it is the way the process is executed that is alien to most academics. Hence Rule 2.

Rule 2: Business Is Part Art, Part Science

Success as an academic comes from having an eye for detail and contemplating a problem from every conceivable angle and only moving forward when you believe you have fully analyzed the problem. Businesses are typically different—the ecosystems involved are very complex, so they cannot be tested or researched to anything like the same degree of certainty. On occasion you must act quickly and based only on gut instinct. It is not by chance that economics is referred to as the “dismal science”. There is a degree of luck behind every success.

Rule 3: Define to Yourself and Others Why You Are Starting a Company and Be Prepared for Those Reasons to Change

There are many reasons academics start companies. At one end of the spectrum is the desire to make money; at the other end is the desire to do something for humanity. For most of us the reason is usually somewhere in between. That sounds fine, but in practice the time will come when one has to make hard choices and sacrifice one for the other. At the outset, define for yourself and others who are working on establishing the company where each of you stands on this issue, what is motivating you, and what you are willing to sacrifice. Remember also that a company is a legal entity in its own right and exists only to serve its stakeholders and no one else. As a rule of thumb, it often takes three CEOs to take a company to floatation—one to start it, one to develop it into a thriving business, and one to float or sell it—all different skills. Boards and executives will come and go and companies will change over time as they have to adapt to a market and not the other way round. Consequently, once you have breathed life into a company it can continue, with or without you, and its shape and purpose may change radically as markets demand.

Rule 4: Decide What of Yourself You Are Willing to Put into the Company

There are many forms of investment to start companies—ranging from your own credit card or bank loan, angels (private investors), institutions, or VCs. It is a rare business that can be started on its own internal cash flow or is unique in its offerings to the marketplace. A common metric used by investors as part of evaluating a company is to ask the founders what money and time they are willing to invest in the company. The answer is telling to them and to you. Most academics will not give up their day jobs to establish a company, which is a red flag for investors unless you can immediately compensate for this issue with the required resources, such as an experienced CEO or other team members. Hence Rule 5.

Rule 5: Get Professional Business Help Early

Starting a company will require many skills an academic does not typically have. The general outline of a business plan describes these amongst others:

• Product/manufacturing/service delivery
• Manufacturing process
• Sales and marketing
• Business management and administration
• HR/personnel
• Financial management
• Legal, patents, contracts, etc.

The needed depth of such skills will also vary depending on the maturity of the business.

You can learn some of these skills as you go and there is fun in that, but for some tasks you will undoubtedly need deep expertise that can only be had from business professionals: for example, don't write your own contracts—get a lawyer to review them and don't expect to go from your laboratory and become a competent and successful salesperson. Above all, get a decent bookkeeper or accountant on board, as nothing is more depressing than spending your evenings doing the accounts and invoicing! So, recognize that you will need help and that help has to be paid for in some way—either through equity or more commonly, actual money—your shares in a start-up don't pay the weekly bill at the supermarket! There are consultants and professional firms that specialize in helping start-ups, and of course most are upright and professional. But not everyone is, so get some advice from business professionals you trust before settling on a course of action that may be irreversible.

Rule 6: Understand the Legal, Ethical, and Regulatory Environment Thoroughly

Companies operate in bureaucratic and litigious environments unfamiliar to most academics. The key here is to get the right advice early on—you won't be able to proceed without lawyers, accountant, insurers, and many other professionals. But, remember their interests and yours are not necessarily aligned even though you are their client. So the rule here is to do your own research first and understand what is a “must have” and what is simply an “optional extra”. You can then operate in a pragmatic way and keep your expenditure of time and resources to a reasonable minimum. Finally, remember that investors will expect you to have covered the bases properly and be operating on advice from recognized experts, which is usually expensive.

Rule 7: Establish a Relationship with Your Academic Institution at the Outset

You need to understand the relationship you as an institutional employee and the company you are founding have with the academic institution in which you work. Typically, if the product comes from your laboratory, the institution in which you work owns the intellectual property (IP) and the company needs to license it from the institution. The work that produced the IP, and perhaps the associated product(s), was likely funded by a third party, and their relationship to the institution and to the company needs to be established. Typically, a government funding agency will confer ownership on the institution in which the work was done. Where things get tricky is when the IP and/or associated product(s), or follow-on IP and product(s), are developed in the company, what is your institution's rightful share? This is where the lawyers or other negotiators come in to establish IP rights.

Rule 8: Realistically Define the Value of Your Business

It is easy to believe that the initial value of your product, and hence company, is much greater than it is. We all read of those rare cases where a start-up is sold to Google or Microsoft for a small fortune, but they are the exceptions. For example, in computational biology, a company based solely on software has little to no value. Your heart and soul may have gone into developing the software, but the hard fact is that others can likely recreate it, and it is difficult to protect; therefore, to an investor it has little value. What does have value is your experience in using that software to achieve the desired outcome, which is a service business with typically a limited but targeted audience. On top of that, the software must be of commercial quality that requires quality assurance, professional technical writers, a support/help desk, etc. Professional marketers call this the unique selling proposition—it's what separates you from your competitors and why people will buy from you—sometimes it's the product, sometimes the service, and sometimes the people, or a combination of all things. Whatever it is, it must be clear and compelling, and then it's a straightforward matter to put some metrics around it, work out what it's worth, and see who is interested.

Rule 9: Think about Conflict of Interest Every Day

This is a serious issue that could impact your standing in the university and your community of scientific peers. Your professional standing will likely always be more valuable to you than being a co-founder of a company, so be careful. Many institutions have a conflict of interest office that can assist you in making the right decisions. The bottom line is that nothing you do in the laboratory should be driven by what can be perceived as being for the sole benefit of the company. Obviously, there is a huge gray area when it benefits the laboratory and likely the company as well. A useful exercise before undertaking something that might be perceived as a conflict is to conjure up how someone who didn't like you could spin what you are doing as a negative article in a reputable newspaper. How does that article read? Academic institutions competing for students and research funds do not like bad publicity.

Rule 10: Decide Responsibilities and Equity Share before You Start

The nicest people and the best collegial relationships will be tested when forming a company together. The farther you go in establishing the company, the more vested each of those involved will become in its success. This is good on the one hand, but very bad if expectations for reward are not set at the outset. When incorporating the company, an initial set of shares is assigned; this is the time to define the initial equity share and should be based on past contributions to the enterprise and what each founder and employee will contribute to the company. Shares that vest over time (i.e., potential value that increases the more time and effort you put into the company) are a typical means of defining on-going contributions as well as monetary rewards. We would go so far as to say that in the life of a company there are always falling outs: the advantage of a limited company is that company rules typically state what should happen in such circumstances and the shareholders decide collectively. So never go ahead without planning for some acrimony and never ever go ahead on the basis of a handshake or as an unwritten partnership—lawyers are expensive in resolving conflicts.

As we said at the outset, the rules are a cautionary tale, but do not be deterred. Businesses are hard work but they are fun; you'll enjoy the experience. Nothing really beats the handshake (and signing) that closes a sale, or the unsolicited testimonial that tells you what you produced helped someone. You'll meet lots of people you would never have met before and probably go to places (nice and not so nice) that you would not go as an academic. You will take pride in having created something tangible that people value; they paid money for it after all. But remember never to compromise your academic principles—they are the most valuable asset you have.

About the Authors

Anthony C. Fletcher has a PhD in organic chemistry, and had a 20-year career as a management consultant with Deloitte and with Cap Gemini Ernst and Young, and is now a freelance consultant.

Philip E. Bourne was trained as a physical chemist, is a professor of Pharmacology at the University of California San Diego, and the co-founder of SciVee.tv and editor-in-chief of this journal. The authors have known each other since birth, still go motorcycling together, and have been involved in two companies together.

To read this content please select one of the options below:

Please note you do not have access to teaching notes, small business start‐ups: success factors and support implications.

International Journal of Entrepreneurial Behavior & Research

ISSN : 1355-2554

Article publication date: 1 December 1998

This empirical study investigates the characteristics of a cohort of 166 small businesses which were set up during a period of recession by founders, all of whom had experienced a period of unemployment prior to start‐up. These new ventures were appraised and supported by their local Training & Enterprise Council (TEC) prior to start‐up and in their formative months. This paper analyses the appropriateness and success of support services in the light of an empirical investigation of the factors which appear to impact on survival/failure and growth prospects of surveyed businesses. Comparisons are made between those businesses which are still trading and those which have ceased trading and between businesses with high and low growth expectations. Factors which are investigated include the founders’ personal background and experience; reasons put forward for start‐up; early problems encountered in running a business; business objectives and expectations.

• Small firms
• Training and enterprise councils

Watson, K. , Hogarth‐Scott, S. and Wilson, N. (1998), "Small business start‐ups: success factors and support implications", International Journal of Entrepreneurial Behavior & Research , Vol. 4 No. 3, pp. 217-238. https://doi.org/10.1108/13552559810235510

Copyright © 1998, MCB UP Limited

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How to Conduct Market Research for a Startup

• 17 Mar 2022

With every innovative product idea comes the pressing question: “Will people want to buy it?”

As an entrepreneur with a big idea, what’s the best way to determine how potential customers will react to your product? Conducting market research can provide the data needed to decide whether your product fits your target market.

Before launching a new venture, you should understand market research. Here’s how to conduct market research for a startup and why it’s important.

Access your free e-book today.

What Is Market Research?

Market research is the process of gathering information about customers and the market as a whole to determine a product or service’s viability. Market research includes interviews, surveys, focus groups, and industry data analyses.

The goal of market research is to better understand potential customers, how well your product or service fits their needs, and how it compares to competitors’ offerings.

There are two types of research you can conduct: primary and secondary.

• Primary research requires collecting data to learn about your specific customers or target market segment. It’s useful for creating buyer personas, segmenting your market, and improving your product to cater to customers’ needs .
• Secondary research is conducted using data you didn’t collect yourself. Industry reports, public databases, and other companies’ proprietary data can be used to gain insights into your target market segment and industry.

Why Is Market Research Important for Entrepreneurs?

Before launching your venture, it’s wise to conduct market research to ensure your product or service will be well received. Feedback from people who fall into your target demographics can be invaluable as you iterate on and improve your product.

Performing market research can also help you determine a pricing strategy by gauging customers’ willingness to pay for your product. Additionally, it can improve the user experience by revealing what features matter most to potential customers.

When assessing which startups to fund, investors place heavy importance on thorough market research that indicates promising potential. Providing tangible proof that your product fulfills a market need and demonstrating you’ve taken the time to iterate on and improve it signal that your startup could be a worthwhile investment.

Related: How to Talk to Potential Investors: 5 Tips

How to Do Market Research for a Startup

1. form hypotheses.

What questions do you aim to answer through market research? Using those questions, you can make predictions called hypotheses . Defining your hypotheses upfront can help guide your approach to selecting subjects, researching questions, and testing designs.

An example question you may ask is: “How much are people in my target demographic willing to pay for the current version of my product?” Your hypothesis could be: “If my product contains all its current features, customers will be willing to pay $500 for it.”

Another example question you may ask is: “What’s the user’s biggest pain point, and is my product meeting their needs?” Your hypothesis could be: “I believe the user’s biggest pain point is needing an easy, unintimidating way to learn basic car maintenance, and I predict that my product meets that need.”

You can and should test multiple hypotheses, but try to select no more than a few per test, so the research stays focused.

Related: A Beginner’s Guide to Hypothesis Testing in Business

2. Select the Type of Research Needed to Test Hypotheses

Once you’ve formed your hypotheses, determine which type of research to conduct.

If your hypotheses focus on determining your startup’s place in the broader market, start with secondary research. This can include using existing data to determine market size, how much of that market your startup could reasonably own, who your biggest competitors are, and how your brand and product compare to theirs.

If your hypotheses require primary research, decide which data collection method best fits your needs. These can include one-on-one interviews, surveys, focus groups, and polls. Primary research allows you to gather insights into customer satisfaction and loyalty, brand awareness and perception, and real-time product usability.

3. Identify Target Demographics and Recruit Subjects

To gather meaningful insights, you need to understand your target demographic. Do you aim to cater to working parents, young athletes, or pet owners? Determine the type of person who can benefit from your product.

If you conduct primary research, you need to recruit subjects. This can be done in several ways, including:

• Word of mouth: The simplest but least reliable way to recruit participants is by word of mouth. Ask people you know to refer others to be research subjects, then screen them to confirm they fit your target demographic.
• Promoting the study on social media: Many social media platforms enable you to show an ad to people who fall into specific demographic categories or have certain interests. This allows you to get the word out to a large number of people who qualify.
• Hiring a third-party market research company: Some companies provide full market research services and recruit participants and conduct research on your behalf.

However you recruit subjects, ensure they take a screener survey beforehand, which allows you to determine whether they fit the specific demographic you want to study or have a trait that eliminates them from the research pool. It also provides demographic data—such as age and race—that enables you to select a diverse subset of your target demographic.

In addition, you can offer compensation to boost participation, such as money, meal vouchers, gift cards, or early access to your product. Make it clear that compensation is in appreciation for subjects’ time and honest feedback.

4. Conduct the Research

Once you’ve determined the type of research and target demographic necessary to test your hypotheses, conduct your research. To reduce bias, enlist someone unfamiliar with your hypotheses to perform interviews or lead focus groups.

Ask questions based on your audience and hypotheses. For instance, if you’re aiming to test existing customers’ purchase motivations, you may ask: “What challenge were you trying to solve when you first bought the product?”

If examining brand perception, your audience should consist of potential customers who don’t yet know your brand. Present them with a list of competitor logos—with yours in the mix—and ask them to rank the brands by perceived reliability.

While the questions you ask are vehicles to prove or disprove hypotheses, ensure they don’t lead subjects in one direction. To craft unbiased research questions , use neutral language and vary the order of options in multiple-choice questions. This can keep subjects from selecting the same option each time if they sense the third option is always mapped to a certain outcome. It also helps account for primacy bias (the tendency to select the first option in a list) and recency bias (the tendency to select the final option in a list).

Once you’ve collected data, ensure it’s organized efficiently and securely so you can protect subjects’ identities .

Related: 3 Examples of Bad Survey Questions and How to Fix Them

5. Gather Insights and Determine Action Items

After you’ve organized your data, analyze it to extract actionable insights. While some of the data will be qualitative rather than quantitative, you can detect patterns in responses to make it quantifiable. For instance, noting that 15 of 20 subjects mentioned feeling overwhelmed when attempting to assemble your product.

Once you’ve analyzed the data and communicated emerging trends using data visualizations , outline action items.

If the majority of users in your target demographic reported feeling overwhelmed while assembling your product, action items might include:

• Creating different versions of assembly instructions to test with other groups, varying diagrams and instructional language
• Researching instruction manual best practices

Each round of market research can offer more information about how your product is perceived and experienced by potential users.

Market Research as an Ongoing Endeavor

While it’s useful to conduct market research before launching your product, you should revisit your hypotheses and form new ones over the course of building your venture.

By conducting market research with each version of your product, you can gradually improve it and ensure it continues to fit target customers’ needs.

Are you interested in bolstering your entrepreneurship skills? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn to speak the language of the startup world.

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What Makes a New Business Start-Up Successful?

• Published: May 2000
• Volume 14 , pages 165–182, ( 2000 )

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• Gavin C. Reid 1 &
• Julia A. Smith 2  

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This paper seeks a good measure of new business performance, and then explains this measure by various dimensions of business strategy. Three criteria are used to create a one dimensional ordinal ranking of high, medium and low performance for new business starts: employment growth; return on capital employed; and labour productivity. It is shown that statistical cluster analysis provides a convincing separation of a sample of new business starts into high, medium and low performance categories, using a minimum distance criterion for clustering. An ordinal logit model (with selection) is then used to explain this performance ranking. The results indicate that many widely discussed features of small business strategy have little, or even negative, impact on performance. Of the numerous aims that owner managers may adopt (survival, growth etc.), only one appears to have a major impact on performance; the pursuit of the highest rate of return on investment. Many entrepreneurial perceptions of their own capabilities appear false or unimportant, with the exception of organisational features and systems.

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Reid, G.C., Smith, J.A. What Makes a New Business Start-Up Successful?. Small Business Economics 14 , 165–182 (2000). https://doi.org/10.1023/A:1008168226739

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Understanding retirement needs

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How Much Do I Need to Retire? A Complete Guide to Retirement Planning

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• Target savings will vary for each future retiree, depending on one's expenses and current salary.
• Many advisors recommend saving 15% of your earnings annually or even more if you are getting a late start.
• Multiple income streams and a conservative withdrawal rate ensure you don't run out of money.

Acquiring adequate retirement savings doesn't happen overnight. For most people, saving enough for retirement requires decades of dedication and strategic financial planning . But how much do you actually need to save to ensure a comfortable retirement? 

Here are the best retirement plans , calculators, investment strategies, and tips you can use to ensure your retirement savings plan is on track. 

Assessing your retirement needs

Unfortunately, there's no general number to aim for when saving toward retirement. Your target retirement savings goal will differ greatly from your siblings', neighbors', and even your coworkers' goals since the amount you'll need largely depends on personal factors.

However, one rule of thumb applies to everyone: The sooner you start saving, the less effort you'll need to put in to reach your goal, and the better-positioned you'll be later in life. 

According to the 2024 MassMutual Retirement Happiness Study , the average age for retirees in the U.S. is 62. If you were to live to 85, this means you'd need enough money to cover all your expenses (and retirement goals) for at least 22 years. Economic factors like inflation will also certainly impact your savings over time.

Estimating your retirement expenses

Understanding what you expect retirement to look like will help determine how much you'll need to fund that lifestyle. If you plan to travel the world in luxury, your budget will differ from someone wanting to bird watch from the backyard each morning.

In retirement, your savings will cover many of the same expenses you had pre-retirement. This includes costs like food, housing, transportation, clothes, gifts, utilities, insurance (including a health plan), and travel.

In most cases, these expenses won't change much from pre- to post-retirement, which makes creating a budget easier. But if you have big plans for your retirement years (moving to a new state or country, buying a bigger home, increasing travel, etc.), you must calculate how much your new standard of living will cost. 

How much do you need to retire comfortably? 

The first step to adequately saving for retirement is to determine how much you'll need. This means analyzing current and future expenses and deciding how much you can afford to put away each month. You may also want to use a number of different savings and investment vehicles or passive income streams.

Financial advisors suggest saving around 10 times your current salary by the time you reach retirement age. Before you retire, you should aim to reduce your annual expenses as much as possible, including paying off existing debt. This can help stretch your retirement savings for even longer. 

As always, it's wise to consult with a trusted financial planner to help you determine your unique needs and retirement savings strategy.

How much to save for retirement based on your age

One way to see if you're on track to reach a comfortable retirement savings is to aim for a multiple of your current annual earnings. This serves as a rough estimate so you can get a better sense of your situation. Remember that the amount of savings required to ensure a comfortable retirement varies according to your projected retirement costs and even the specific investments you choose for your retirement portfolio.

According to Fidelity , here's how much you should have saved up each decade to meet your retirement goals:

Financial advisors recommend dedicating 15% of your annual income toward retirement. However, depending on your retirement goals, financial obligations, and current assets, you may need to save even more.

Types of retirement accounts (401(k), IRA, etc.)

There are multiple savings vehicles and income streams to consider for building your nest egg. These can affect how much you need to save today, depending on which sources of income are available to you.

Some of the most popular types of retirement accounts include: 

• 401(k) plans: Employer-sponsored investment vehicles with compounding power and tax advantages to help you grow your nest egg steadily over time. Money in a 401(k) can be invested in various securities, and your contributions may even be matched by your employer, amplifying your efforts. Funds can be distributed without penalty beginning at age 59 ½, or earlier with certain exceptions.
• IRAs: IRAs are retirement accounts individuals open through major banks, credit unions, and other financial institutions. The best IRA accounts include traditional, Roth, SEP, and SIMPLE IRAs. IRAs have the same tax advantages as 401(k)s but offer more flexibility over how your funds are allocated.
• Traditional pension plans: Traditional pensions are another employer-sponsored investment vehicle certain businesses offer. With a pension, your employer is responsible for contributing and investing the funds in your account. The amount contributed is determined by employee earnings and years at the business. 

Outside of savings accounts, other ways to generate income during retirement include:

• Social Security benefits: Social Security is a government program that provides individuals with monthly retirement and disability benefits. You can opt-in to start receiving Social Security benefits as early as age 62, but you'll receive lower payments. Financial experts recommend delaying Social Security until you reach full retirement age (age 70). 
• Annuities: Annuities are another retirement income source to consider. They're offered by insurance companies and act as a long-term investment vehicle. After purchasing an annuity — either with a lump sum or periodic purchase payments — you will receive regular payments over the course of your retirement.

Planning for inflation in retirement

Remember to consider inflation and its impact on your savings. For instance, in 2024, there have been inflation rates of 3%, following the 3.3% increase in 2023 and the high 6.5% rate in 2022. Generally, you should account for inflation of approximately 2% per year.

However, certain economic, political, or natural disasters can cause unexpected spikes in inflation. In those cases, you may experience significant financial losses that require you to permanently or temporarily adjust your lifestyle and budget. One of the best ways to hedge against inflation and market downturns is by continuing to invest after retirement . 

Healthcare costs and long-term care planning

Try to account for potential unexpected expenses, such as medical care for you and your spouse or even financially helping a child or grandchild.

"The most common expense that a retiree can ignore (or forget to budget for) is end-of-life expectancy expenses," says Jim Ludwick, a CFP and member at Garrett Planning Network . "This includes caregivers coming to your house, going into assisted living, or skilled nursing. Those are very expensive parts of people's lives. And a lot of times that can eat up quite a bit of savings if it goes on for an extended period of time."

Downsizing and lifestyle adjustments

When planning your retirement lifestyle, consider where you want to live. You may want to downsize depending on your preferred lifestyle, savings amount, and priorities. That said, your priorities may be buying your dream retirement home or moving to a certain location. In this case, be sure that you factor those larger expenses into your budget.

Retirement planning general rules of thumb

While everyone's situation and needs will differ, there are a few primary rules of thumb that most financial advisors follow, which you should consider when determining how much to save for retirement.

Retirement income as a percentage of pre-retirement income

Many financial professionals recommend that you account for between 70% and 80% of your pre-retirement income each year in retirement. This means that if you currently earn $60,000 per year, you should plan to spend between $42,000 to $48,000 annually once you retire. 

This isn't a set rule for everyone, and you may need to even account for more savings. "Many people need to have income streams (or savings and investments) cover 80%, 90%, or even 100% of their pre-retirement budget," Ludwick says. It all depends on your specific expenses now and in retirement.

Saving 15% of your earnings every year

If you start saving for retirement early enough, an annual savings rate of 15% may be sufficient to meet your goals. If you're off to a late start, you may need to save a lot more each year to catch up. 

"As you get older, the amount needed for savings to reach the same end goal roughly doubles every 10 years," says Tolen Teigen, chief investment officer for FinDec . "So, if someone waits ten years to start saving, instead of 30, they are now 40. Instead of 8% to 10% annually, they are now looking at 16% to 20% saved to reach the same end number."

Saving 10 times your income by retirement age

As mentioned above, many financial advisors and firms like Fidelity recommend having approximately 10 times your annual salary saved by the time you reach retirement age. While this may not be exactly what you need, it's a good target to keep in mind as you go. You can always adjust it depending on your projected needs in retirement.

The 4% withdrawal rule 

Many retirees are concerned about running out of money once they reach retirement. The 4% rule may be a good guideline to avoid this. While many factors can affect the actual drawdown process, the 4% rule can be a good place to start if you want to avoid running out of money.

This rule states that retirees can withdraw up to 4% of their retirement savings in year one of retirement. So, if you have $2,000,000 in retirement savings, you would withdraw $80,000 that first year. In year two, you would adjust that $80,000 for inflation and withdraw that amount from your savings.

Keep in mind that while the 4% rule is standard, some financial advisors say your actual withdrawal percentage could be anywhere from 3% to 5%.

Seeking professional advice when retirement planning

There is no one-size-fits-all approach to saving for retirement. Everyone's needs will be different, and so will their approach to saving, including when they start and how much they can set aside each year. Consulting with a certified financial planner or other retirement expert is the best way to understand your unique needs.

"Planning ahead and checking in on your efforts" is key to saving enough for the retirement years, Ludwick says."It's dangerous when you're 75 and realize you're running out of money and you have to move in with a younger sibling or something." 

His advice? "If you want to stay independent, do your homework ahead of time. Think about all those things that could possibly happen. If they don't happen, you're lucky … and your kids and grandkids can have a nice gift that you leave behind."

You can calculate how much you need to retire by assessing your expected expenses, considering your desired lifestyle, current expenses, projected inflation, and healthcare costs. Business Insider's free retirement calculator can help you see if you're on track to secure a comfortable retirement. You can also use other rules of thumb, such as having an annual savings rate of 15%.

The 4% rule in retirement planning suggests withdrawing 4% of your retirement savings each year to prevent you from prematurely running out of money for at least 30 years. It's a general guideline to help estimate how much you need to save. However, some advisors recommend more or less than that rate.

You can maximize your retirement savings by regularly contributing to tax-advantaged retirement accounts like 401(k)s and IRAs to maximize employer matching contributions, investment opportunities, and compound interest. Generally, it's best practice to max out your retirement accounts first. Also, adopt a diversified investment strategy for greater portfolio growth and risk management.

The sooner you start planning for retirement, the easier it will be to compound your savings and reach your goals. Starting in your 20s and 30s allows more time for your investments to grow. It's still possible to catch up if you start in your 40s or 50s by saving more aggressively and adjusting your strategy, but it will be generally more stressful. 

Common mistakes to avoid in retirement planning include underestimating expenses, waiting to start saving, relying too heavily on Social Security, failing to diversify investments, spending too quickly, and not accounting for healthcare costs and inflation. The best way to avoid these common mistakes is by creating a thorough financial plan and consulting a financial advisor.

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