Saving for Retirement

How to Plan for Retirement

Whether you’re just getting started or nearing the finish line in your retirement savings journey, it’s important to have a strong plan laid out. To start, you’ll need to decide on what kind of retirement portfolio will best accomplish your goals. To do that, you’ll need to consider the following.

1. Get a holistic portrait of your finances.

There are many differing opinions on the rules for retirement saving. Some experts hypothesize the average retiree will need 25 times their current earnings¹ to live comfortably in retirement; others advise to save enough that a 4% withdrawal² would cover an entire year. In your retirement savings plan, be sure to consider the kind of lifestyle you’re leading now and how, as time progresses, it may change. Depending on how far away you are from retirement, you may be extrapolating a little or a lot. Be sure to revisit your financial plan every five or 10 years to check in on how you’re doing.

2. Don’t forget to include others in your plan.

If you are married, check in with your spouse to ensure your financial and lifestyle goals for retirement are aligned. If you anticipate caring for adult children or other relatives, you’ll have to factor their needs into your finances as well.

3. Start saving.

When it comes to retirement contributions, the sooner you start, the better. Most retirement plans are geared toward the long-term, so the earlier money is set aside, the longer it has to grow. However, there are catch-up plans for those starting their savings journey later in life. In 2015, the U.S. Financial Industry Regulatory Authority  reported³ that over half of Americans were worried about having enough for retirement, but 42% of those polled didn’t have a retirement savings account in the first place. So, whether you’re 22 or 52, what’s important about saving for retirement is to start. Some savings is better than no savings, and you’d be surprised at how quickly a small contribution can grow.

Types of Retirement Plans

Once you’ve decided to start seriously looking into saving for retirement, you’ll need to choose a plan (or plans) that will suit your needs. Here are some of the most common plans and some great places to get started.

• 401(k): This retirement plan allows you to contribute a portion of your gross paycheck to specified investments. (Depending on your career field, you may be offered a 403(b) or 457(b), which operate similarly.) Contributions to a 401(k) are limited to a set amount per year by the government. Many workplaces also offer a matching bonus as an incentive; this matched contribution may be vested, meaning if you change companies, that amount will not follow you.
  
• Individual Retirement Account (IRA): Any contributions to this type of retirement plan remain untaxed until withdrawal, which means the full amount paid in will be able to grow over time, or used for investment portfolios. However, these accounts are also subject to yearly contribution limits, and any income made via investment in these accounts is subject to taxation.
• Roth IRA: With a Roth IRA, you pay taxes before you invest the money in your retirement account, so your contributions will grow tax-free. Also, after five years, withdrawals before the holder turns 59½ are not subject to penalization.
• Managed accounts: While you may choose to have any retirement plan overseen by a financial advisor, many people also choose to open a managed investment account with the express intent of using any earnings for retirement.
  
• Pensions: Certain career fields have pension retirement plans, where the employer agrees to set aside a certain amount of money for the employee’s benefit. Depending on your employer, you may have a defined benefit plan, wherein a guaranteed amount of money is distributed upon retirement, or a defined contribution plan, where the amount disbursed may change upon taxation and investment performance.

Figuring Out When to Retire

There’s no right answer to the question, “When can I retire?” It depends on a multitude of factors. Most retirement plans are designed for the holders to cash in around age 65. Some people, through aggressive investment and savings, retire well before that. Other people defer retirement to later, in order to mature their investments even longer.

Regardless of age, it’s important to assess what liquid assets you have versus what’s tied up in investments. Withdrawing your retirement funds isn’t an instantaneous process, so it’s necessary to have funds available to cover immediate expenses. It’s generally advised that you should start seriously evaluating your liquid funds when you’re about ten years out from your desired retirement age, to ensure you’ll be able to execute your retirement plans comfortably.

Let us help you start saving for retirement.

Our financial consultants can give you a personalized look how to save for retirement.⁴  We can walk you through actionable steps to bolster existing plans, or help you get started with a plan that’s right for you.