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.

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.

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.

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.

Social Security

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.

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.

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!

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.