Retirement Planning

Have you started planning for your retirement? An even bigger question is, “Do you know how much money you’ll need for retirement?” Most people don’t have real grasp on the answer. So, how can you plan to save for retirement if you’re not clear about the amount you’ll really need?

Join SAFE Cents host Mark, as he shows you a new yet incredibly logical approach to establishing that total retirement goal amount you’ll need.

Retirement Planning: a Video Summary

Ever wondered what you’ll do when you retire?

Will you find a new hobby? Travel the world? Do...literally whatever you want? That’s the beauty of retirement: you can do anything you want— as long as you prepare. Financially, I mean.

I’m talking about retirement planning. And you need to do that now.

Because the longer you put it off, the more likely your retirement plan will include who’s gonna wear the mask and who’ll the drive the getaway car.

So, let’s take the first step together: identifying how much money you need to retire.

Some financial planners recommend using your annual salary as a starting point. Here’s the problem with that approach: do you over-spend using credit cards? Then you’ll need more.

Are you more of a saver? You may need less. How much you plan to spend in retirement is a much better indicator of how much you need than salary. How much is that? Let’s simplify things by thinking about it monthly.

So, imagine yourself at retirement age. You look great, by the way. You’re ready to transition into take it easy and start spending all that hard-earned cash.

How much money will you spend each month on housing, food, entertainment, travel?

Try to predict your healthcare costs. Spoiler alert: those will probably be higher than they are now.

You’ll also need to consider inflation. Things will cost more in the future, so plan for that.

Once you have that monthly spending number — subtract any monthly income you plan to have in retirement, like Social Security, pensions or annuities — then it’s just a matter of simple math. Multiply your monthly spending by 12 to get your annual spending. Then multiply that number by the number of years you expect to be retired (we used 30), and you’ve got a fairly reliable retirement savings goal amount.

We’ll talk about how you reach that number in a later episode. But if you want to get cracking on that sooner, just visit our Learning Center.

How to Plan

Oftentimes, creating a retirement savings plan can seem like an insurmountable task that we’d rather put off for another day (or another year). But don’t let the uncertainty cause you to fall behind on your goals! Preparing for retirement takes planning and patience, but it doesn’t have to cause stress. Let’s walk through the main components of crafting a plan: simply assess what you’ll spend in the future and make a goal to get there.  

Look at Your Living Expenses

This may take some time and some honesty. Assess your current yearly budget and envision what that budget should look like when you retire. Do you want it to shrink, grow, or remain the same?  

Everyday Living

This is the bulk of your budget. Think about eating and dining habits, routine costs and subscriptions, special occasions, and so on.

Lifestyle Plans

Do you plan to move somewhere new or make any big purchases in retirement? What are the maintenance costs of those items?

Health Care Costs

While you may not know what your health will entail, try to create a ballpark in your budget that would help you feel confident in your level of care, including any additional health coverage you may have.  

Debts

Will you still be paying off debts in retirement? Assess what you need to maintain this schedule.

Calculate Your Needs

No one wants to be halfway through their nest egg before they ask themselves, “How long will my savings last in retirement?” Prevent that crisis by choosing one of these strategies or creating your own.

Adjust Your Income

One strategy is to aim for an annual income that is 70% - 85% that of your working income. This is a good goal for those who don’t wish to deviate too much from the standard guidelines. Be sure to think honestly about whether you will be satisfied with this “cut” in pay.

10th Time's the Charm

Another retirement method is saving ten years’ worth of your current salary. Depending on your habits throughout retirement, this can give you ten years at the same standard of living or you can practice more modest spending to extend this amount even further.

The 4% Rule

If you have a comfortable amount of savings, you can plan using the 4% rule, where you begin the first year of retirement withdrawing 4% of your total savings. Continue to withdraw that amount in the following years, increasing the amount for inflation if necessary.

How to Save

Now that you have your goals in place, it’s time to start working towards them. There are many common options for a retirement savings account and they all come with their own benefits and compromises. However you choose to save your money, what’s most important is picking a method that you can stick to.  

What is a Traditional vs. Roth IRA?

An IRA is an individual retirement account which is operated through a bank or credit union. These come in two forms, including a traditional, or pre-tax, IRA and a Roth, or after-tax, IRA. These plans primarily differ in the origin of contributions, with traditional IRAs being deducted from a paycheck before tax and Roth IRAs being deducted after tax. Usually, deciding between these two options depends on an individual’s current income and long-term goals. Here are some things to consider when deciding between a Traditional and a Roth IRA:  

Taxes Now or Taxes Later

Traditional IRAs allow you to contribute money that has not yet been taxed. This allows you to benefit from tax deductions now while the money is tax-deferred. When you are ready to withdraw, that income will be taxed based on your current tax bracket.

Roth IRAs require investments from your paycheck after taxes have been withdrawn. These funds can grow over time and be withdrawn without any additional taxes.

Play the Waiting Game

Traditional IRAs must remain in the account until you are 59 ½ years old. Additionally, you are required to take the minimum distribution by age 73.

Roth IRAs do allow you to withdraw your funds before age 59 ½, but they may be subject to taxes before this point. There are no required minimum distributions with this type.

What is a 401(k)?

A 401(k) is an employer-sponsored retirement savings account. Typically, employers allow all eligible employees to automatically contribute their desired amount directly through payroll. There are many benefits to investing in your 401(k), including:

• Traditional or Roth plans
• Employer matching
• High contribution amounts

How Do I Use Social Security Benefits?

Most working Americans contribute to Social Security taxes through their paycheck. These funds are used to support over 70 million Americans who are in retirement, utilizing survivor benefits, or suffering from a disability. The Social Security retirement benefit is awarded to individuals who have worked for at least 10 years by the time they are 62 years old. If these criteria are met, you can retire and begin collecting your monthly benefit at this time. However, there are incentives to continue working beyond this point which can help you earn even more:

• Your benefits are determined by your 35 years of highest earnings, so if your career is progressing in your 60s, continuing to work could help to raise your benefit.
• If you are still working by the full retirement age of 66 or 67, your annual benefits will increase by 8% for every year you postpone retirement (until age 70).

Getting Creative

If you’re still wondering how long will retirement savings last for you, it may help to ease your worries by considering some additional sources of income. For personal assistance, explore how SAFE Investment Services can help you get on the right track.

Delaying Retirement

Taking more time to prepare for retirement can help to set yourself up for an even better season of leisure. While giving you more time to save, taking a few extra years can also increase your social security benefits. If this sounds like a good option for you, view our resource on delaying retirement.

Additional Income Streams

If you find that your retirement plan needs an additional boost, investments can be a great option to increase your savings without adding to your workload.