The Basics of Planning for Your Retirement

Retirement has traditionally been viewed as a season of life when you can relax and enjoy yourself after a long career in the workforce. For some that vision includes spending time with family and friends, travel, volunteering, or even working part-time. That's the retirement dream.

Unfortunately, a lot of people put off planning for retirement and the possibility of achieving financial independence is difficult to imagine. The retirement reality is that only 69 percent of workers feel that they and/or their spouse have saved enough money for retirement. According to the latest Retirement Confidence Survey from the Employee Benefit Research Institute and Mathew Greenwald & Associates, only about 6 out of 10 workers and/or their spouses have saved anything for retirement.

Retirement can be a very challenging season of life for anyone who fails to save. Without enough of a retirement nest egg, you could find yourself saying "so long" to your dream retirement and hello to an extended working career. Worse yet, you could spend your retirement worrying about money and experiencing financial stress.
The good news is the ability to live comfortably during your retirement years is largely within your own control. With a little planning and a solid foundation of financial wellness, working forever doesn't have to be your retirement reality!
Here are some actions you can take today to make the process of reaching those retirement goals feel a little more achievable:

Set your retirement goals.

In order to set a personalized retirement plan, it is important to create your own unique definition of what retirement means to you. Start by asking yourself the following questions:

• When would you ideally like to retire?
• What do you look forward to the most?
• How many years do you expect to live in retirement (i.e., what is your life expectancy)?
• What lifestyle do you want when you retire?
• What monthly income will you need during retirement to maintain my current lifestyle?
• Which income sources are available (Social Security, pension, 401(k), investment earnings, home equity, etc.) to fund your retirement?
• How many years do you have left to save?
• How will you spend your time in retirement?

When setting your retirement goals try to put them in writing. As you create your written plan try focus on the things you can control such as how much to save and where to invest it. A written retirement plan will help you track your progress over time. But this shouldn’t be a set and forget it process. Be sure to monitor your plan and adjust as necessary.

Figure out if you are saving enough.

According to a recent survey from Financial Finesse, only about half of workers have taken the time to calculate how much retirement savings they will likely need in retirement. You can use your retirement goals as a guide to determine if you are saving enough. If your planned retirement age is more than ten years away, it’s okay to simply target a percentage of your current income as a retirement goal. Many financial planners recommend trying to replace around 80 percent of your current salary to maintain the same comfortable lifestyle during retirement.

As you get closer to retirement, use the Budget Planning for Retirement worksheet to estimate your retirement expenses. 

To determine if you are on the right track to meet your retirement goals, use a retirement calculator. In order to make sure you aren't missing any important details you should gather the following information:

• Most recent statements and/or current account balances for all retirement accounts, including employer-sponsored retirement plans (401(k), 403(b), pension plans, etc.) and IRAs.
• Total planned contribution amounts to be made each year into your retirement accounts.
• Anticipated inflation rate and average annual rate of return expectations that will be used in the calculations.
• Desired and acceptable income levels during your retirement years.
• Estimate your future income from Social Security (Social Security retirement estimator).

A variety of retirement calculators and estimator tools are available to help you figure out if your retirement plan is on the right path or if there is a shortfall.Just remember that if your results aren't exactly as you planned there are steps you can take to improve your outlook. The key is to at least have the awareness of where you stand today. It's also a good idea to run another retirement estimate at least once per year.

Choose the right type of accounts to save for your retirement (and help your money grow).

Asset “location” is an important aspect of the retirement planning. There are a variety of retirement savings options to help you save for your dream retirement. It is obvious that saving for retirement is so important that Uncle Sam is willing to provide tax advantages for saving in specific retirement accounts (like IRAs, 401(k), 403(b) and 457 plans). Here is a brief summary of the main type of retirement accounts to consider.
Employer-sponsored retirement plans (401k, 403b, 457, etc). Many financial experts suggest that your company retirement plan can be one of your best investments. There are some valid reasons why this should be the first place to begin your retirement savings journey.

1. Contributions are made on a pre-tax basis so they directly reduce your taxable income. And they also grow tax-deferred, meaning that you won’t pay taxes on the gains until you are ready to withdraw the funds.
2. It is rarely wise to leave behind any free money so don’t miss out on employer matching contributions! The majority of companies offer matching programs that can enhance the return on your money. To benefit from an employer match, make sure you are contributing at least up to the company match, but don’t feel like you must stop there. The average employer contribution amount is around 3 percent. However, is generally recommended you should strive to save between 10 and 20 percent of your income for long-term goals like retirement.
3. Employer-sponsored plans are becoming more portable. This means they can be transferred without tax consequences into an IRA or to a future employer’s retirement plan through a rollover.  
4. Roth account options are becoming more prevalent within employer-sponsored retirement plans. If you do not need to lower your taxable income or see yourself being in a higher income tax bracket during retirement, consider making Roth contributions.

Check out Individual Retirement Accounts (IRAs). If your employer does not offer a 401(k) or similar retirement plan, you may be eligible to fund a deductible traditional Individual Retirement Account (IRA). Whether or not your employer offers a retirement plan, it isn’t your only investment option when it comes to saving for retirement. You may be eligible to fund a tax-deferred traditional IRA or a tax-free Roth IRA. IRAs are another great way to sock money away for the future. Some income limits and other restrictions apply in order to deduct the contribution or to contribute to a Roth IRA. So make sure that you are choosing the best IRA for your situation and remember you can always contribute to both if you are not quite sure.
Consider Health Savings Accounts (HSAs). Health savings accounts provide excellent tax benefits for out-of-pocket health care expenses. They may also be used as a supplemental source of retirement income.
Discover retirement plan options for entrepreneurs and the self-employed. If you are self-employed or own a very small business with a few employees, you have the ability to setup self-employed retirement plans that could make it easier to save for retirement and reduce your taxes along the way.

• SEP IRA
• SIMPLE IRA
• Solo 401(k) Plan
• Keogh Plans

Insurance and Annuities. A variety of different insurance and annuity products exist these days that can be used as part of a well-structured retirement income plan. For example, annuities offer tax-deferred growth and income.
Taxable investment accounts. While tax-deferred investment accounts are usually the first place to start with tax-smart investing, taxable accounts have some benefits. The flexibility to use funds for a variety of reasons is one benefit. Another is the ability to take advantage of tax loss harvesting and low capital gains rates when using tax efficient investments. You can also look at municipal bonds for tax-free income.

Review how your money is invested.

You're not going to get too far with your savings plan if you put your money into a savings account, money market fund or other "safe" place than you would if you buried your money in the ground or hid your cash under a mattress. In fact, these supposedly safe options are actually subject to a significant risk known as inflation which will put a major drag on the purchasing power of a dollar over time. In other words, after taxes are paid on your investment earnings, you'll be able to buy less with your money when you retire than you can today.
How you choose to allocate your assets across different investment types can significantly impact your ability to reach your retirement goals. You have to do some self-assessment to determine what asset allocation works best for your particular situation. For example, you could start by assessing your investor risk tolerance. You can compare your current asset allocation with asset allocation models consistent with your risk tolerance and time horizon. Then, you will want to determine if you prefer a "hands on" or a more "hands off" approach to investing. Hands-off retirement investors may prefer the ease and convenience of target date retirement funds or pre-mixed asset allocation portfolios. Another important decision is whether you prefer an active vs. passive style of management.

Make it easier by creating a plan you can easily follow.

Saving for retirement isn’t a one-time event, it’s a lifelong process of creating good habits. The more you can do to simplify your retirement plan the easier it will be to stay on the right course.