Retirement Planning 101: 6 Tips for Preparing for Your Preferred Retirement Lifestyle


Retirement Planning 101 - 6 Tips for Preparing for Your Preferred Retirement Lifestyle

You work hard to earn the lifestyle you have, and you want to make sure that hard work pays off—especially in retirement. The hard truth is that without adequate retirement planning, when it comes time to retire, you may have to adjust your lifestyle to accommodate a lower income. However, it’s never too late (or too early) to start retirement planning. If you develop the right game plan and set the right objectives, you can put away a substantial nest egg and live the retirement lifestyle you desire.

In fact, if you implement a successful retirement plan, you will be well ahead of most Americans. According to J.P. Morgan Chase Asset Management and the U.S. Census Bureau, 74 percent of Americans are behind their retirement planning goals. And Americans tend to underestimate their retirement needs. One third of Americans polled said they would like to have between $100,000-$250,000 saved for retirement, which is a fraction of what they will really need. In Missouri, for example, if you spend about $44,000 per year to maintain your current lifestyle, you will need $1.1 million to maintain that lifestyle at retirement. And that amount doesn’t account for dreams of a vacation home or extensive travel once you stop working.

So what should you include in retirement planning? Here are some tips to get you started.

1. Develop a detailed retirement plan.

Putting money aside for retirement is good, but you really won’t know how much you need to save without a retirement plan. Set a savings goal. You can conduct a financial assessment to estimate how much you will need. Some of the variables you need to consider include your current income and expenses, savings, emergency savings, and long-term obligations, such as children’s education. Don’t forget to factor in debt, including mortgage payments and credit cards. Once you have a comprehensive picture of your finances, you can set long-term and short-term savings goals. Be sure to revisit your retirement plan at least once per year to assess whether you’re still on track to hit your goal.

2. Estimate how much you really need.

After taking a hard look at your finances to see how much you can afford to save each month, it’s important to make sure that amount will really be enough for retirement. For years, financial planners recommended putting 10 percent of your income away for retirement. Unfortunately, 10 percent is no longer enough, even with aggressive investments. Today, one popular budgeting strategy is the 50/30/20 rule—setting aside 50 percent of your income for needs (such as rent, groceries, and gas), 30 percent for wants (such as entertainment, travel, and clothing), and 20 percent for savings. This budgeting strategy is easier to manage, but it’s still important to see whether that 20 percent savings strategy will allow you to hit your retirement savings goal. Consider the kind of lifestyle you want when you reach 65, determine how that fits in with your current spending and finances, adjust for inflation, and you should arrive at an accurate figure for your retirement savings needs.

3. Save early!

A mistake that many people make is waiting to start saving, thinking they will have plenty of time once they start making more money in the future. The truth is, no matter how old you are, you should start your retirement planning now! Even if you are just starting out, you actually may have more disposable income in your twenties than you will later in life. Our lifestyles often surpass our income. If you start now and make saving a habit and a priority, it will be much easier to continue growing your nest egg as you progress in your career.

4. Take advantage of 401(k) plans.

If your employer offers a 401(k) or retirement savings plan, use it to put tax-deferred money aside for retirement, even if your company doesn’t contribute to your 401(k). A 401K will lower your tax bill because it sets aside monies before taxes, and it will earn interest over time. If you change jobs or leave your company, roll your 401(k) into another tax-deferred retirement savings product, such as a rollover individual retirement account (IRA).

5. What about IRAs?

IRAs are a great tool for retirement savings. There are different types of IRAs. A traditional IRA is a tax-deferred savings plan that doesn’t tax the money until it is withdrawn. A Roth IRA is a retirement savings plan that requires you to pay the taxes when you contribute to the account, so it is tax-free when you are ready to use it. There also are SIMPLE (Savings Incentive Match Plan for Employees) IRAs for small employers and SEP (Simplified Employee Pension) IRAs for the self-employed. Check with your employer about your eligibility for a retirement savings account. Automatically transferring a percentage of your paycheck to a retirement account with each pay period is one way to help you stick to your savings plan.

6. Consider long-term investments.

Savings accounts and even IRAs tend to yield between 2-3 percent interest. If you invest wisely in stocks, bonds, and mutual funds, your average return could be closer to 10 percent. A qualified broker or retirement planner whom you trust can help you build your nest egg faster. However, remember that there is greater risk in investments—you don’t always come out ahead—and make sure you are clear on how your broker works, particularly when it comes to commissions and fees.

7. Automate your savings plan.

Savings discipline is a challenge for everyone. You have a plan and you know how much you want to put away each month, but unexpected expenses can get in the way. Most banks have automated savings programs that will transfer a specified amount at set intervals from your checking account to a savings or money market account. Take advantage of this easy way to save.

8. Talk to your financial advisor.

Your banker can help you set up savings accounts, money-market accounts, IRAs, or other accounts that are specific to retirement. Many banks also have investments advisors who specialize in helping you achieve your financial goals. Successful retirement planning requires smart savings and investment strategies—starting now! Looking for advice on setting up your specific plan? Our team of trusted experts is here to help you plan for a comfortable retirement. 

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