6 Key Retirement Planning Steps to Take

Retirement can be fun; a chance to revitalize old interests, explore your passions, seek a new purpose, enjoy time with your loved ones, or dedicate yourself to something other than work. But to get to all that, you must first prepare how to get there through successful retirement planning.

As pensions become increasingly rare or unreliable, and Social Security payments are becoming less viable for current generations looking for financial certainty in old age, it’s become more important than ever to plan ahead and consider a retirement account sooner rather than later.

At its heart, retirement planning is about figuring out how much you can save, how long you can save, and how you can best grow and manage what you have saved. Start with your goals, then find out at what rate you will have to save money. Consider:

      • What do you want to do during retirement?
      • How much money would you estimate you would need over a month or year while retired?
      • How many years are you planning to continue working to save up for your retirement?
      • What kind of risk tolerance do you have when it comes to investing?
      • And what about estate planning considerations?

These are just some of the first questions you will have to ask yourself, and there will be plenty more to come. Retirement planning is not a process that is set in stone, as economies and circumstances drastically change, and unexpected events can alter any plan for better or worse. These tips and guidelines are meant to be applicable at any age, and any stage.

But understand that individual retirement planning is often an evolving and complex subject, and one you should discuss with a financial professional, and a tax professional. Your investments, risk tolerance, time horizon, and expenses may change drastically over the years, and it is wise to reassess your retirement plan often.

Choose a Retirement Account

If you have an employer-sponsored retirement plan, such as a 401(k), make sure to allocate enough money to meet any requirements your employer may have to benefit off employer matching. These defined contribution plans are built off a set percentage of your annual salary, allowing you to set your contributions, and then manage the account’s growth via investment. If you are self-employed, there are several different types of individual retirement accounts (IRAs) typically offered by financial institutions such as banks.

These are also available to employees who have maxed out their 401(k) and have enough savings left to open another retirement account. And yes, you can have both. There are a variety of different types of retirement accounts, each with their own tax benefits, different tax rates on withdrawals, and a variety of pros and cons. It is important to go over each type and ideally discuss them with a financial advisor to pick out a retirement account that best suits your circumstances.

Determine How Much Time You Have

Your “time horizon” is a deadline for contributing to and compounding a savings account. Most people tend to juggle multiple time horizons, saving up for major milestones such as their child’s future college tuition, the cost of moving to another state, or perhaps a dream car.

When taking your retirement goals into account, make sure to note how much you can spare to save every month, and allocate your savings and determine your time horizons accordingly, tucking away more or less of your savings towards the tuition fund, or the moving fund, or the retirement account, and so on. A critical part of any successful retirement plan is finding ways to reconcile what you can save with what you must save and adjusting either your time horizon or your goals to meet realistic expectations.

Calculate How Much Money You Need

To determine how long you should save up, you must determine how much you should save up. Some people endeavor to lead a frugal life in retirement, while others wish to spend their first few golden years splurging on bucket list items before living off the rest of their savings. Depending on what you aim to do after retirement, your goals may look drastically different. These goals, alongside your time horizon, will determine how aggressively you should save and how much risk you should tolerate when investing.

While many retirement plans are predicated on the assumption that you will continue to live comfortably with around 75-80 percent of your current cost of living, it is wiser and safer to assume that you will continue to spend close to 100 percent. Even if you end up spending less towards the later years, you may splurge early on. It’s important to note that life expectancy in the US continues to rise, and healthcare costs continue to dramatically increase.

A pragmatic view of future expenses, alongside an aggressive savings plan, and estate planning tools to minimize the financial burden of your end-of-life care can go a long way towards making the most of your retirement savings. Other important factors to consider include whether you will continue paying mortgage by the time you retire, what other costs you will have to bear due to existing or hereditary chronic conditions, and any other likely changes in monthly expenses.

Balance Your Investment Portfolio

Retirement accounts grow via contributions and compounding interest (investment gains). Contributions are a portion of your monthly or annual income siphoned into your retirement account, depending on how it is set up. Your investment gains will depend on the type of investments you make and are usually determined by how you balance your portfolio.

You have greater freedom when investing your IRA versus your 401(k), as you can choose individual stocks and indices, whereas 401(k)s typically limit you to either long-term, aggressive investment strategies, or short-term, conservative strategies. Whenever the chance presents itself to take more agency in your investments, discuss your options with a professional, and pick stocks and bonds based on your time horizon and retirement goals, taking into account inflation and after-tax returns.

Take Estate Planning Into Consideration

Estate planning represents an important part of the retirement planning process because it will determine how your savings will continue to grow and be distributed among your loved ones, while also giving you the ability to give answers to critical questions such as:

      • Who will take care of your minor dependents after you die?
      • Who will manage your funds if your beneficiaries are minors?
      • How can you ensure that dependents with special needs are not taken advantage of?
      • What kind of end-of-life care do you envision for yourself?
      • What extraordinary life saving measures would you authorize?
      • How are you planning to distribute your assets and accounts?
      • And much more.

Estate planning is not a process reserved for the wealthy or elderly, and can be especially important for young families who have not sorted out their finances yet, blended families with complicated assets, or individuals who have remarried or are living with a partner while unmarried or in a common law marriage.

Stay on Top of Your Retirement Plan

Crises, windfalls, and other major life events can throw your retirement plans into disarray and require a major overhaul of your expectations and financial commitments. Be sure to review your retirement plan and estate plan every few years and go over the fine print with a legal and financial professional to save yourself and your family a lot of stress and unnecessary costs.


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