Ultimate Retirement Guide

Everything you need to know about planning for retirement

The definition of retirement continues to evolve. The FIRE Movement has some people focused on retiring early, while traditional retirees are living longer than ever.

Regardless of when you plan to retire, you’ll need to plan for a longer retirement than our parents’ generation ever thought about. And we’re doing so with increasing concerns about pensions and Social Security living up to their promises. According to the latest projections by the Social Security Administration trust funds will be depleted by 2034.

EventOld-Age and Survivors Insurance (OAS)Disability Insurance (DI)Social Security Benefits (OAS & DI)Hospital Insurance
First year cost exceeds income excluding interest2010201920102008
First year cost exceeds total income2020201920182018
Year trust funds are depleted2034203220342026

Retirement plan participation

People are living longer, healthier lives and staying active well into their later years. The definition of retirement is changing. So, it is more critical than ever to contribute to retirement plans and invest in your future.

Surprisingly, company-sponsored retirement plan participation has not been increasing as you might hope. According to a study from Pew Trusts, only 52% of eligible Millennials have signed up their company’s defined contribution plan – i.e. 401(k) or 403(b). Baby Boomers have the highest participation rate at 80%. There’s still room for improvement for every generation.

This comprehensive guide will provide an overview of retirement planning options that you should consider for your retirement income.

Traditional retirement planning options

When it comes to retirement planning, there are numerous options to consider. Traditional retirement plans include employer- and government-sponsored plans and individual plans. Annuities are another tax-deferred option for people who have maxed out their retirement contributions.

Some of the more common retirement plans include:

  • Individual Retirement Accounts (including traditional, Roth IRA, and SIMPLE IRA).
  • Company Pension Plans.
  • Employer-Sponsored Savings (such as 401(k), 403(b), and 457 Plan).
  • Annuities offered by insurance companies.

If you need encouragement to sign up for your employer-sponsored savings plan, consider this:

  • Contributions are taken before taxes, thereby lowering your taxable income.
  • The interest accumulates tax-free as well.
  • Most employers offer matching contributions (free money!).

A professional wealth advisor can help you develop a plan that will work for you. They’ll evaluate your account balances, current savings rates, and goals with you. At retirement, many clients roll over their employer-sponsored accounts to an IRA to gain additional options and closer management by their advisor.

Liquid investment accounts

A liquid investment account is a great choice for people who are maxing out their retirement plans or are looking to retire early. These accounts are more commonly referred to as brokerage accounts.

The two critical differences between liquid investment accounts and traditional retirement accounts are how they are reported and age restrictions.

Liquid investment accounts gains, losses, and dividends are reported on tax returns. There are no age restrictions on when you can use the money.

With liquid investment accounts, you can invest in stocks, bonds, mutual funds, or ETFs. You have many options to contribute to these accounts. Writing a check, manual contributions, or automatic investments are the most common.

For people focusing on traditional retirement age, these liquid investment accounts are a great option. They can save additional money once their 401(k), IRAs, and other tax-deferred accounts have been maxed out. If you’re planning to retire early, liquid investment accounts are critical so that you avoid the 10% penalty for withdrawing before retirement age.

Real estate rental income for retirement

Rental income is a popular way to create a passive income stream. Rental properties offer many benefits to their owners. There is cash flow from monthly rents. Tenant’s rents to pay off the mortgage. The homes can appreciate in value. And there are tax benefits from the annual depreciation.

Working with a lender specializing in investment properties will help you find a mortgage program that will work best for your situation.

Annuities provide monthly income

Social Security will be a part of your retirement plan. However, if you are not close to traditional retirement age, the benefit you receive may be lower than current retirees. That’s why it is important to calculate how much you need to save, then stretch to save more if you can.

If you’re searching for more options of tax-deferred growth, consider an annuity. Today’s annuity options can provide stable monthly income similar to a pension or Social Security or they can mimic the mutual funds in your retirement accounts.

Your home can fund your retirement too

Retirees that have a shortfall between their income from retirement plans, savings, and other sources can tap into the equity of their home. To calculate how much value you have in your home, take the current market value minus your unpaid principal to determine your current net home equity.

If you sold your home, this number becomes smaller after factoring in 6% agent commission plus normal closing costs. Large transaction costs cause retirees to decide to stay in their home.

One way to tap into the value of your home without moving is to apply for a reverse mortgage. A reverse mortgage provides a monthly check or a lump sum of cash based on a percentage of the equity in a home. Consult a professional from the list below to learn more and about your options.

What you need to do to retire

Even if you are only in your 20s or 30s today, it’s never too early to plan for retirement. In fact, the sooner you start investing money for your later years the better off you will be.

Traditional rules-of-thumb for retirement income suggest that you’ll need 70% of your income in retirement. Your number will vary based on where you live, your health, and what retirement activities you have planned.

Here’s how to calculate how much money you will need to retire using the U.S. Department of Labor retirement planning tool. It calculates both estimated income and expenses in retirement.

How much retirement income will you have?

Begin by calculating how much money you expect to have when you retire.

Review your investments account to determine the current balances. Your monthly contributions these accounts will also be needed.

Look up your estimated Social Security retirement benefits using the Social Security Administration’s online calculator. You can now create an account to view your historical income and contributions. While you’re there, review their records to ensure their correct.

The Department of Labor’s tool will not factor in other sources of income, such as rental properties, the sale of a business, or side hustles. Calculate those numbers separately and add them in manually to the online results.

What are your expenses?

Next, look at your expenses. It may be difficult to anticipate the amount and type of expenses you’ll have in the distant future. Start with the expenses you know, then we can add in an estimate for unknowns later. Known expenses typically include your home, debt payments, medical costs, food, and utilities.

Expenses will change as you age. Commuting and work clothes expenses will go down, but leisure activities and medical expenses will go up. Having a frank discussion with your spouse about goals and expected lifestyle in retirement will allow you to make critical decisions today.

Is there enough money for retirement?

Finally, look at your anticipated income versus your expected outflow. The Department of Labor’s online calculator will provide a good idea of if you will be prepared to retire when you reach retirement age.

According to the U.S. Department of Labor, few people have the exact amount of money they need.

If this is the case, what should you do?

How to Close the Gap on Retirement

If you found a gap between how much you’ll have for retirement and how much you need for retirement, there are options.

Here are six smart money moves to consider:

  • If you have an employer-sponsored retirement plan (like a 401(k)), increase your contributions each year.
  • Stay employed longer by putting off retirement until later.
  • Cut needless expenses now and resist taking on any new debts.
  • Work to your full retirement age and delay taking Social Security until you’re 70 1/2.
  • Focus on your health now and in the future. A healthier you will have less medical expenses in the future.
  • Learn how to invest wisely or hire a financial expert to help you plan.

If you’re close to or in retirement age, consider these additional steps:

  • Make extra retirement contributions allowed under the “catch-up provisions” rule.
  • Allow tax-advantaged accounts, like IRAs, to compound for as long as possible by withdrawing money from your taxable accounts first.
  • Balance your portfolio between short- and long-term investments.
  • Stay active and help your bank account by taking on a part-time job or starting a side-hustle.
  • Schedule a meeting with a financial professional to evaluate your options and to optimize your investments.

The most important approach is to start saving as soon as possible. If you’re already saving now, increase your savings every time you get a raise. Visit our investment advisors and brokerages comparison pages and see which company is best for your goals and circumstances.