Retirement Planning

Making retirement plans can feel daunting because the future seems so far away. In reality, the choices you make today shape what it looks like. The sooner you start, the more time your savings have to grow, and the smaller the monthly effort has to be. Starting later means you have to be more deliberate about saving, but it is not too late to start.

Picture the retirement you want

Before you look at numbers, think about what you really want out of life. Do you want to travel? Stay close to family? Start a business, or downsize? When do you want to stop working? The life you picture tells you what you are actually saving for. A retirement full of travel costs more than a quiet one at home, and retiring at 60 takes more savings than retiring at 67.

Estimate how much you may need

A simple starting point is to assume you will need a large share of your current income each year in retirement, then adjust for your own plans. Add up what you expect to spend on housing, food, healthcare, travel and hobbies. Subtract the income you expect from sources like Social Security or a pension. The gap is what your savings need to cover. Healthcare costs tend to rise as you age, so give them extra attention.

Learn your main places to save

Workplace plans such as 401(k)s and 403(b)s let you save directly from your paycheck, and many employers add a matching contribution. If yours does, contributing enough to get the full match is a pretty easy win. There are also IRAs, which come in traditional and Roth versions. Traditional IRAs may offer an up-front tax break, while Roth IRAs are funded with after-tax money and may allow tax-free withdrawals later, if the rules are met. Contribution limits and eligibility change, so check the current IRS limits each year.

Social Security timing is important

Social Security benefits are available as early as 62, but there are benefits to waiting. Your monthly benefit can grow the longer you delay, up until 70. What is right for you depends on your health, your other sources of income, whether you are married, and how long you think you will need the income. It is one of the largest retirement decisions you will make, so it is worth taking the time to think it through.

Drawing down your savings

Saving is only part of the plan. You will also need to figure out the best way to draw down your savings so they last. That includes how much to withdraw each year, which accounts to tap first, and how to keep your money invested enough to keep up with inflation without taking on more risk than you are comfortable with. Certain accounts are also subject to required minimum distributions starting at a certain age, and how you manage those can affect your taxes.

Common mistakes to avoid

• Waiting too long to start saving
• Cashing out retirement accounts when changing jobs
• Underestimating the cost of healthcare
• Forgetting to account for inflation
• Never revisiting the plan as your income, family and goals change

Your next step

A plan works best when it is built around your real numbers and goals. If you would like to see where you stand and what to focus on next, request a free consultation.