Planning for retirement is more complex than setting a magic savings number. Preparing for the long-term, including your years living in retirement, requires a much more comprehensive approach.
As Financial Advisors, we are often asked “when can I retire?” While sometimes frustrating for people to hear, the answer is usually, “that depends.”
Every client is different, and every plan is unique but the framework for creating a retirement plan comes down to two basic principles: saving and spending.
Saving: How, when, where, how much?
How much to save is the most obvious question, but a more savvy approach is to consider where you should be saving money for retirement and how those funds should be allocated to best serve your long-term goals.
Understanding the different types of retirement accounts is a good place to start when considering where and how to save for retirement. For those with employer-provided retirement benefits, it is usually ideal to maximize the use of those options. A combination of accounts can be used together to create a diverse portfolio aligned to meet your personal goals for living in retirement. Consider learning first about the most common types:
- IRAs vs Roth IRAs
- 401k vs Roth 401k
- Solo 401k or SEP-IRA
- Defined benefit pension plan
A financial professional can help you work through these five questions on the planning checklist:
- How much should I be saving for retirement?
- Where should I be saving my money for retirement?
- How should I be allocating my investments to meet my retirement goals?
- Should I be debt-free when I retire?
- Social Security – when should I start to collect benefits?
Once you have a plan for saving, it is important to build in a long-term plan for spending as well. Getting to retirement may seem like a finish line but it is really just the start of another phase of life.
Spending: How will you be paying?
Living in retirement costs money. Whether you have plans to travel the world or simplify your lifestyle and relax, you will have expenses. Cash flow strategies are important to have in place.
A retirement budget should be based on your personal goals and allow for flexibility to cover the “what-ifs” possible in life. What if your medical expenses are more than you anticipate? What if you live longer than you were expecting? What if you are presented with the opportunity of a lifetime?
Five more questions to add to our retirement planning checklist will help address spending:
- What types of cash-flow strategies should I have in place for retirement?
- Where should I draw funds from to pay my expenses in retirement?
- How much can I draw from my retirement assets each year and not run out of money?
- How do I develop a retirement budget?
- How to plan for medical expenses in retirement?
These checklist items are general guidelines. Individuals should consult with their financial advisor when considering personal financial choices in planning for retirement.
To learn more, register for a free Retirement Planning Checklist webinar – Wednesday, August 26, 11 a.m.