Planning for retirement: How to get started

Retirement planning can help you to make decisions in the present that will have an effect on your future financial security, as well as provide for your retirement needs. Planning now can help you to retire confidently and with peace of mind knowing your needs are going to be met when you’re ready to enjoy your golden years and that your financial future is secure.


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Do you want to retire sometime soon? Planning for retirement is a process that allows you to plan for the future and live the lifestyle you want. It’s important to start saving as soon as possible, but it can be difficult when you don’t know where to begin. In this article, you’ll discover the basics of retirement planning, all in one place!

Retirement planning is something that many people put off until the last minute. But retirement planning has never been more important than it is today because we are living longer and retirement funds are not as plentiful as they once were. 

What is retirement planning?

Retirement planning is the process of figuring out how much money you will need to cover your needs and wants during retirement. This includes determining how much money you will need to save, what your living expenses will be, and how long you expect to live after you’ve retired. Retirement planning can seem daunting, but it is important to start sooner rather than later so that you have enough time to prepare (and earn interest on your savings and investments!). Indeed, the sooner one starts planning for retirement, the better. 

The $500,000 mistake

Take, for example, a 25-year-old who contributes $200/mo into an S&P500 index fund. Assuming a historical 10% annual return, this person could expect as much as $850,000 by age 65. However, for the same person who starts their retirement savings at age 35, that amount plummets to less than $350,000.  

How much do you need for retirement?

When thinking about retirement, one of the most common questions is “How much do I need to retire?” This may seem like a fairly straightforward question, but the answer is not something simple. For this reason, many people employ the services of a financial or investment advisor with expertise in retirement planning strategies. 

Related: What are annuities & are they worth investing in?

Now, if you’re the DIY type, how much you need for retirement depends solely on your (current and future) income and expenses. You can retire when all your sources of income in retirement will fund your chosen lifestyle.  Further, determining how much you need means identifying sources of income, calculating costs, creating savings programs, as well as managing assets.

Related: What is a fiduciary?

Begin with a budget

To get an estimate for how much money you will need for retirement, start by taking a hard look at your current budget. This includes looking at how much you spend each month on essentials such as housing, food, transportation, and healthcare. 

How to start budgeting

Once you have an idea of what your regular expenses are, you can begin to imagine the expenses you might have during retirement. These costs include retirement-related expenses such as travel, entertainment, and leisure activities.  

You may also want to consider that, in retirement, there may be some expenses that you no longer have — like a mortgage or a car payment. 

Don’t forget inflation

Inflation is an important factor to consider when planning for retirement because the cost of living increases over time. That means you may need a higher income in retirement to maintain your current standard of living. This is one reason why retirement planning has become so much more important over the past few years. Inflation and taxes have negatively impacted retirement accounts due to low-interest rates, which means that retirees and pre-retirees may need to rely on their retirement savings for even longer than they expected.

Generating income in retirement

Once you have a good idea of your expenses in retirement, you can begin figuring out how to pay for it all. Income from retirement can come from multiple sources. For example, we might think of Social Security, private pensions, retirement accounts, dividends, or even alternative sources such as rental income, or part-time employment.

Let’s take a look at each of these:

Social Security

Those born after 1928 can qualify for Social Security benefits once they collect 40 credits. And since 1978, you can earn up to 4 credits a year, depending on how much you earn. Those who have more than 40 credits at retirement do not receive any further benefit.

On average, Americans collect 40% of their pre-retirement income in the form of Social Security benefits. A retirees’ Social Security benefit is calculated based on age, earnings history, contributions, and date of retirement. For example, if you were born in 1960 and earn $60,000 a year, you might expect $1,146 per month in Social Security benefits in 2022 (at age 62) or $1,982 per month at age 67.

Social security benefits calculator for retirement planning

The retirement age varies depending on when you were born. If you were born in 1955 or before, you are already eligible for full Social Security benefits.

There are also other variations to consider, such as the early retirement age and normal retirement age. The early retirement age is when you can start receiving your pension benefits before reaching the official retirement age set by the government. Early retirement can start at age 62.

Related: Social Security & retirement: What you need to know

Retirement accounts

There are many retirement plans and retirement investment options, but the most common ones include 401(k) and IRAs (whether self-directed or Roth). And their most common holdings include stocks, ETFs (Exchange Traded Funds), and bonds. 

Roth IRAs are a popular retirement saving account because your contributions are already taxed, meaning future withdrawals are not taxable. This reduces the income tax payable in retirement. Funding the Roth IRA first is often a sound retirement plan, as the tax benefit is too good to pass up.

On the other hand, 401(k) accounts are retirement vehicles offered by many employers. The 401(k) allows the employee to contribute a percentage of their pre-tax dollars, usually from each paycheck. And a fund manager will then invest that money in a combination of stocks, ETFs, and bonds. Furthermore, employers often offer a matching retirement contribution of a certain percentage. This means the employer contributes a “bonus” to your retirement account. 

In rarer circumstances, employers will also offer a Roth 401(k). Like the Roth IRA, Roth 401(k) contributions are made with after-tax dollars. As a result, Roth 401(k) withdrawals are tax-free. 

Related: Traditional IRAs & Roth IRAs: What’s the difference?

Taxable accounts

Taxable accounts are usually brokerage accounts where investors can hold stocks, bonds, ETFs, options, etc. Like a 401(k), taxable accounts get funded with after-tax dollars. However, unlike a 401(k), the investor pays taxes on the sale of the investments, dividends, and interest income when applicable.

The ‘4% Rule’

Saving money in a retirement account, and watching it grow can be both exciting and satisfying. But, protecting the balance is also a very important part of retirement planning. Withdraw too much, and you’ll outlive your retirement account. Withdraw too little, and the retirement account will outlast you! 

So how much can you withdraw? This is where the “4% rule” comes in. This rule states that you can withdraw 4%t of your retirement savings (your investments) each year without running the risk of depleting them. Let’s say, for example, if you have retirement savings worth $400,000, then you could withdraw $16,000 a year, or about $1,333 a month. With $600,000 in retirement funds, the safe withdrawal rate would soar to $2,000 a month. 

Of course, everyone’s situation is different, and for that reason, it’s smart to consult with a financial or investment advisor.

Related: How to find a financial planner

Rental income

One income strategy that can help boost your retirement income is to generate rental income from property (or properties) you own. This could be a second home that you use as a vacation spot, or it could be a room or a basement that you rent out to tenants. There are several things to consider when renting out property in retirement, such as the amount of time and effort you want to put into managing the property, maintenance costs and tax implications.

If you don’t already own property to generate income but are interested in buying, you can start by researching what kind of properties are available in your area and what the potential rental income could be. Next, it’s smart to factor in the costs of ownership and management, such as property taxes, insurance, and repairs. Having a plan for how you will screen potential tenants and what kind of lease agreement you will use. Finally, be sure to consult with your tax advisor to understand the implications of renting out property in retirement.

Spend less now & enjoy a brighter future

We’ve all been there. You find yourself sitting in front of your computer displaying an airline ticket, wondering if the deal is worth the cost. Or you spot a new shirt on sale and wonder if it will go on clearance next week. If so, should you wait? And what about that expensive coffee from your favorite café? 

By prioritizing spending less than you earn today, you’re likely to have more to invest in other assets. And that can mean a better retirement. This may require some budgeting and tracking of your expenses, and just saying “no” to what you don’t actually need. For example, cutting your budget by just $100 each month could mean having an extra $100,000 or more in retirement, or an additional $333 every month in retirement income. 

Final thoughts

Retirement planning can help you to make decisions in the present that will have an effect on your future financial security, as well as provide for your retirement needs. Planning now can help you to retire confidently and with peace of mind knowing your needs are going to be met when you’re ready to enjoy your golden years and that your financial future is secure.

Rick Orford is a Wall Street Journal, USA Today, and Amazon best-selling author, investor, and mentor. He’s appeared on Good Morning America and has been featured in the Washington Post, Yahoo Finance, MSN, Insider, and more. His passion is personal finance, and he works tirelessly to deliver content in an easy-to-understand manner.


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