4 Steps to a Secure Retirement

Retirement planning is a multistep process that evolves over time. To have a comfortable, secure retirement, you need to build the financial security to fund it all. The intention is to pay attention and plan ahead as to how you’ll get there.

Planning for retirement starts with thinking about what your retirement goals look like, and how long of a runway you have until they become a reality. Next, analyze the tools at your disposal to fund these goals; that is, retirement savings accounts such as 401(k)s and IRAs, investment options, and other income sources like Social Security and pensions. The surprise last part is taxes: If you’ve received tax deductions over the years for contributions to your retirement accounts, be prepared to pay taxes when you withdraw those savings. There are ways to minimize the retirement tax hit while you are saving for the future and even continue the process once retirement arrives.

In the following article we will discuss all of the main issues which may arise as you plan for retirement. But first, we will begin talking about the four steps everyone should take action, no matter your age, to begin building a strong, secure retirement.

Understand Your Time Frame

Your current age and expected retirement age can help lay the initial groundwork to your retirement plan. For example, if you have 30 or more years until retirement, you have more flexibility. The main idea here is you have “longer” period of time in which to build up your future retirement nest egg.

Your time frame may also impact how you save and invest your nest egg. Generally speaking, stocks are seen as “high risk / high reward” investments, while bonds are seen as less volatile and lower risk. This has led many to conclude that retirees should have most their portfolio in bonds, while younger demographics can “afford” more risk and therefore should invest more heavily in stocks. As with most things in life, the truth likely lies somewhere in the middle: stocks and bonds each serve a purpose in a diversified portfolio.

Realize Your Retirement Spending Needs

Being realistic about your plans post-retirement will help you to understand how much you’ll need saved up in a retirement portfolio. Many people believe that upon retirement their annual spending will only be about 70% to 80% of the amount they spent before retirement. Many times, this can be unrealistic, especially if you have other bills which have not been paid off such as a mortgage or medical bills. Also, it is important to budget your retirement plan if you plan on traveling or checking off “bucket list” ideas. The cost of living is increasing every year, especially for health care expenses. Therefore, it is important for your retirement plan to budget honestly. Having an accurate estimate of what your expenses will be in retirement is important because it will affect how much you withdraw each year and how you invest your savings, if at all.

Know How Social Security Fits In

Will Social Security be around when you retire? Perhaps, but maybe not. The earliest you can draw Social Security is age 62, but the longer you wait to take it, the more money you will receive, generally. A middle-income wage earner, will on average collect about 40% of their pre-retirement income from Social Security. If you take Social Security before your full retirement age (somewhere between 66-67, depending on what year you were born) there is a limit on how income you can make before some (or all) of your Social Security benefits are withheld.

If You Come Up Short, How You Can Make Up the Difference

If there seems to be a gap between what you are saving now and what you will need post-retirement consider the following ideas:

  • Putting more money into your 401(k) retirement plan, especially if you are not setting aside enough to get the full company match. Think about how much it costs to put another 1% in your retirement plan. A great time do this is after you get a raise at work.
  • Make catch-up contributions to your 401(k) or IRA if you are age 50 or older. “Catch-up” contributions allow those over 50 to save an extra $6,500 or $1,000 per year in their 401(k) or IRA, respectively
  • Manage debt so you have more money in your budget for long-term savings.
  • Plan to work a little longer, if you are able to. Delaying retirement by one year can help boost your savings if that is what you need.
  • Work for a specific increase in income and then save that money. This can be done by trying for a promotion or changing jobs.

Keeping these four steps in mind, you can set yourself up to achieve a successful retirement. Not only will you potentially increase your future retirement nest egg, you also increase your likelihood of being able to do the things which are important to you. Naturally, there will be events in life which alter your plans or goals, such as births, deaths, or job changes. However through a diligent planning process you can set yourself up for success no matter what life throws your way.

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The information contained herein is provided for informational purposes, represents only a summary of the topics discussed, and should not be construed as the provision of personalized investment advice or an offer to sell or the solicitation of any offer to buy any securities. The contents should also not be construed as tax or legal advice.  Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the author. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass.

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Taylor Hoffman is not a law firm, and the information contained herein should not be construed as legal advice. Rather the contents included are a reflection of the view and opinions of the author. There is no guarantee that the information provided fits every situation, and individuals should consult their attorney for more specifics.

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