What Is Retirement Planning?

Creating a retirement plan begins with d🍎etermining your long-term financial goals and tolerance for risk, and then starting to take action to reach those goals. The process ꧂can begin anytime during your working years, but the earlier, the better.

The process of creatin𝓡g a retirement plan includes identifying your income sources, adding up your expenses, putting a savings plan into effect, and managing your as﷽sets. By estimating your future cash flows, you can judge whether your retirement income goal is realistic.

Needless to say, a retirement plan is not a static document. You’ll need💯 to update it from time toꦺ time as well as review it to monitor your progress.

How Retirement Planning Works

🐼A retirement plan is your preparation for a good life after you’re done working to pay the bills or at least done working a full-time job. But it’s not all about money.

The non-financial aspects include lifestyle choices such as how you want to spend your 🐎time in retirement and where you’ll live. A holistic 🔯approach to retirement planning considers all these areas.

🅷 The goals for your retiremen🐭t plan will change in focus over time:

• Early in a person’s working life, your contribution to retirement savings may be modest. The reward is 40-plus years of investment growth.
• During the middle of your career, when your income may be at its peak, you might set specific income or asset targets and take steps toward achieving them.
• Once you reach retirement age, you go from accumulating assets to what planners call the distribution phase. You’re no longer paying into your retirement account(s). Instead, you start collecting the rewards of decades of savings.

How Much Do You Need to Retire?

Your magic number, which is the 澳洲幸运5官方开奖结果体彩网:amount you n🐲eed to retire comfortabl🤡y, is highly personalized. But there are rules of t🌱humb that can give you an idea of how much to save.

• People used to say that you need around $1 million to retire comfortably.
• Other professionals use the 80% rule, which states that you need 80% of your current income to live comfortably after retiring. So if you made $100,000 per year, you would need savings that produce $80,000 per year for roughly 20 years, or a total of $1.6 million.
• Others say most of us aren’t saving anywhere near enough to meet those benchmarks and should adjust our lifestyles accordingly.

Estimating Expenses

Your post-ret🅘irement expenses largely determine that “magiꦗc number.”

It’s a꧙ good idea to create a retirement budget, calculating estimated cos𝄹ts for housing, health insurance, food, clothing, and transportation.

And since you’ll have more free time on your hands, you may also✱ want to factor in the cost of entertainment, hobbies, and travel.

It may be hard to come up with ౠconcrete figures, but a reasonable estimate will be helpful.

Steps to Retirement Planning

Regardless of where you are in life, several key 澳洲幸运5官方开奖结果体彩网:steps apply to almost everyone during their retirement planning. The fo♔ll♌owing are some of the most common:

1. Come up with a plan. This includes deciding when you want to start saving when you want to retire, and how much you’d like to save for your ultimate goal.
2. Decide how much you’ll set aside each month. Using automatic deductions takes away the guesswork, keeps you on track, and takes away 澳洲幸运5官方开奖结果体彩网:the temptation to stop or forget depositing money on your own.
3. 澳洲幸运5官方开奖结果体彩网:Choose the right accounts for you. Invest in a 401(k) or similar account if your employer offers that option. If the company offers an employer match and you don’t sign up, you’re giving away free money. Whether or not there’s an employer match, you’re getting a good deal tax-wise.
4. Check on your investments from time to time and make adjustments. This is especially important after a big event, like marriage or a baby.
   

Retirement Plans

Tax-advantaged retirement savings plans have become the keystone of long-term savings for Americans. You should have access to one or more of these plans depending ꦐon how you earn a living🦹. Each has its own rules and regulations.

Employer-Sponsored Plans

Most large companies offer their employees 401(k) plans. Nonprofit employers have similar 403(b) plans.

An upfront benefit of these 澳洲幸运5官方开奖结果体彩网:qualified retirement plans is that your employer has the option to match what you invest up to a certain amount. For example, if you contribute 3% of your annual income to your plan account, your employer may match that amount, depositing the sum into your retirement account along with yo꧟ur contribution.

You can contribu🐓te more than the amount that will earn the employer match. Some experts recommend contributing upward of 10%.

401(k) Limits

The maximum is revised yearly by the Internal Revenue Service (IRS). Participants can contribute up to $23,000 in 2024 ($23,500 in 2025) to a 401(k) or 403(b), some of which may be added to with an 澳洲幸运5官方开奖结果体彩网:employer match. People age 50 and older can contribute an extra $7,500 per year as a 澳洲幸运5官方开奖结果体彩网:catch-up contribution in 2024 and 2025. Those aged 60 to 63 can now make a catch-up contribution of $11,250 in 2025.

These accounts can earn a much higher rate of return than a savings account (although the investments are not risk-free). The funds in the account, if it is a traditional account rather than a ✃Roth account, are not taxed until you withdraw them. Since your contributions are taken off your gross income, you will get an immediate income tax break.

Those who are on the cusp of a higher tax bracket might consider contributing enough to lower their 澳洲幸运5官方开奖结果体彩网:tax liability.

🦩 💟Traditional Individual Retirement Accounts (IRAs)

The traditional 澳洲幸൩运5官方开奖结果体彩网:individual retirement account (IRA) is similar to a 401(k) plan, but it can be obtained at virtually any bank or brokerage. It is primarily for self-employed people and others who have no access to a 401(k), but anyone with earned incꦅome can invest in an IRA.

The money you save in an IRA is deducted from your income for the year, lowering you꧟r taxable income and, therefore, you♋r tax liability.

The tax benefit to this kind of account is upfront. So when it comes time to take distributions from the account, you are subject to your standard tax rate at that time. Keep in mind, though, that the money grows on a tax-deferred basis. There are no 澳洲幸运5官方开奖结果体彩网:capital gains or dividend taxes that are assessed on the balance of your account until you begin making withdrawals.

IRA Limits

The IRS sets limits on how much you can contribute to a traditional IRA each year. The limit for 2024 and 2025 is $7,000. People who are 50 and older can invest an additional $1,000 for a total of $8,000 in 2024 and 2025.

澳洲幸运5官方开奖结果体彩网:Distributions must be taken at age 73 and can be taken as early as 59½. You will owe taxes on the withdrawal at your regular income tax rate for that year.

Roth Individual Retirement Account (Roth IRA)

A Roth IRA is funded with post-tax dollars. This is a great variation on the IRA, with a little more pain upfront f𝓰or a lot of gain down the road.

The Roth IRA eliminates the immediate tax deduction of the traditional IRA. The mon🐼ey you pay into it is taxed in that year.

However, you should owe no taxes when you start withdrawing money,🎃 either on the amount you put in or the investment gains it ♚accrued.

Starting a Roth IRA early can pay off big time in the long run, even if you don’t have a lot of money to invest at first. Remember, the longer the money sits in a retirement account, the💫 more tax-free interest is earned.

Roth Limits

The 2024 and 2025 contribution limit for either IRA (Roth or traditional) is $7,000 a yea꧒r, or ꦺ$8,000 if you are age 50 or older. A Roth has other restrictions, related to income. For instance:

• A single filer can contribute the full amount only if they make $146,000 or less annually, as of the 2024 tax year. For 2025, they must make $150,000 or less.
• After that, you can invest to a lesser degree, up to an annual income of $161,000 in 2024 and $165,000 in 2025.

Note that the income limits are higher for married couples filing jointly.

As with a 401(k), a Roth IRA has some penalties associated with taking money out 澳洲幸运5官方开奖结果体彩网:before you hit retirement age. But there are a few notable exceptions that may be useful in an emergency. First, you can always withdraw the money you invested (but not the gains it earned) without paying a penalty.

SIMPLE Individual Retirement Account (IRA)

The Savings Incentive Match Plan for Employees (SIMPLE)ꦯ IRA is a retirement account available to 澳洲幸运5官方开奖结果体彩网:employees of small businesses. It’s an alternative to the 401(k), which is expensive for an employer🔴 to manage. It works the same way a 401(k) does, allowing employees to save money automatically through payroll deductions with t🧸he option of an employer match.

This amount is capped at 3% of an employee’s annual salary. The annual contribution limit for a SIMPLE IRA is $16,000 in 2024 and $16,500 in 2025. Catch-up contributions of $3,500 allow employees 50 or older to bump that limit up to $19,500 in 2024 and $20,000 in 2025.

Stages of Retirement Planning

Below are some guidelines for successful retirement 澳洲幸运5官方开奖结果体彩网:planning at different stages of your life.

Young Adulthood (Ages 21 to 35)

Those embarking on adult life may not have a lot of money free to invest, but they do have time to let 澳洲幸运5官方开奖结果体彩网:investments mature, which is a critical piece of retirement sಌavings. This is the principle of compounding.

Compound interest allows interest to earn interest, and the more time you have, the more interest you will earn. If you can only put aside $50 a month, it will be worth three times more if you invest it at age 25 than if you wait to start investing until age 45, 澳洲幸运5官方开奖结果体彩网:thanks to the joys of compounding.

You might be able to invest more money in the future, but you’ll never be able to make up for t💮hat𝐆 lost time.

Early Midlife (Ages 36 to 50)

Early midlife tends to bring financial strains, including mortgages, studen🤡t loans, insurance premiums, and credit card debt.

Still, it’s critical to continue saving at this stage of retirement planning. The combination of earning more money and the time you still have to invest and earn interest makes these years some of the best for aggressive savings.

People at this stage of retirement planning should continue to take advantage of any 401(k) matching programs that their employers offer. They should also try to max out contributions to a 401(k) or Roth IRA (you can have both at the same time). For those ineligible for a Roth IRA, consider a 澳洲幸运5官方开奖结果体彩网:traditional IRA. As with your 401(k), ꦗtᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚhis is funded with pretax dollars, and the assets within it grow tax-deferred.

Some employer-sponsored plans offer a Roth option to set aside after-tax retirement contributions. You are limited to the same annual limit, but there are 澳洲幸运5官方开奖结果体彩网:no income limitations as with a Roth IRA.

Finally, don’t neglect life insurance and disability insurance. You want to ensure that your family can surviv🦩e financially w🧸ithout pulling from retirement savings should something happen to you.

Later Midlife (Ages 50 to 65)

As you approach retirement, your investment accounts should become more conservative. Treasury bills (T-b✱ills) are one of the most conservati൩ve investments, although their returns are also low compared to other investments.

People in this age group have a few advantages. These often include higher wages as well as more disposable income than younger savers.

澳洲幸运5官方开奖结果体彩网:It’s never too late to set up and contribute to a 401(k) or an IRA. One benefit of this retirement planning stage is catch-up contributions. From age 50 on, you can contribute an additional $1,000 in 2024 and 2025 to your traditional or Roth IRA and an additional $7,500 a year to your 401(k) in 2024 and 2025.

Other Investments

Those who have maxed out their tax-incentivized retirement savings options can consider other forms of investment to supplement their retirement savings. Certificates of deposit (CDs), blue-chip stocks, or real estate investments (like a vacation home that you rent out) can be reasona𒐪bly safe ways to add to your nest egg.

You can also begin to get a sense of what your 澳洲幸运5官方开奖结果体彩网:Social Security benefits will be and at what age it makes sense to start taking them. Eligibility for early benefits starts at age 62, but the retirement age for full benefits is 66.

This is the time to look into long-term care insurance, which will help cover the costs of a nursing home or home care should you🔯 need it in your advanced years.꧋ If you don’t properly plan for health-related expenses, especially unexpected ones, they can decimate your savings.

Other Aspects of Retirement Planning

Retirement planning includes a lot more th🔯an simply how much you will save and how much you need. It takes into account your complete financial picture.

Your Home

For most Americans,💞 the single biggest asset they own is their home. ෴How does that fit into your retirement plan?

A home was considered an asset in the past, but since the housing market crash, planners see it as less of an asset than they once did. With the popularity of home equity loans and home equity lines of credit (HELOCs), many homeowners are 澳洲幸运5官方开奖结果体彩网:entering retirement i🤪n mortgage dﷺebt instead of well above water.

Once you retire, there’s also the question of whether ಌyou should sell your home and downsize. If you still live in the home where you raised a family, it might be bigger and costlier than you need or ⛄want.

Your retirement plan should include 🥂an unbiased look 🌠at your home and what to do with it.

Estate Planning

Your 澳洲幸运5官方开奖结果体彩网:estate plan addresses what happens to your assets after you die. It should include a will that lays out your plans.

But even before🐽 that, you should set up a trust or use some other strategy to keep as much of it as possไible shielded from estate taxes.

As of 2024, the first $13.61 million of an estate is exempt from 澳洲幸运5官方开奖结果体彩网:estate taxes ($13.99 million in 2025), but many people are finding ways to leave their money to their children in a way that doesn’t pay them in a lump sum.

Tax Efficiency

Once you reach retiremenﷺt age and begin taking distributions, taxes become a bigger problem. Most of your retirement accounts are taxed as ordinary income tax.

That’s one good argument for considering a Roth IRA or a Roth 401(k), as both allow you to pay taxes upfront rather than upon withdrawal.

If you believe you will have a higher taxable income later in life, it may make sense to do a Roth convers💛ion. An accountant or financial planner can help you work through such tax considerations.

Medical Insurance

Medical expenses tend to increase with age. You will have government-sponsored Medicare coverage at a modest cost to you, but many supplement its coverage with a Medicare Advantage or Medigap policy.

Your choices are many and complex. It’s a good idea to start checking out your options well in advance of retiring.

The Bottom Line

Everyone dreams of the day they can finally say goodbye to the workforce. But doing so costs money. That’s w𝓀here re▨tirement planning comes into play. It doesn’t matter at what point you are in your life. Setting aside money now means you’ll have less to worry about later.