Ultimate Retirement Guide

Everything you need to know about planning for retirement

Retirement used to mean leaving a job you held for 30 or more years with a gold watch and a pension. Now it means planning and investing early to ensure you have a nest egg for your twilight years.

Retirement Overview

What it means to retire has changed over the last 50 years. People live longer, healthier lives and stay active – mentally and physically – well into their later years. For that reason, few people think about retiring, let alone consider how much money they will need to live comfortably during retirement. In fact, a 2011 Employee Benefit Research Institute (EBRI) survey suggests that only 42% of Americans have tried to calculate how much they need to save.

When it comes to retirement planning, you have quite a few options, from employer- and government-sponsored plans to individual plans and annuities. Some of the more common retirement options include:

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

Additionally, don’t forget about Social Security and, if you have one, a traditional savings plan. Plus there’s value in your home. Take the current market value minus your unpaid principal to determine your current net home equity.

By the way, 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!)

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 get started investing money for your later years the better off you will be. There seems to be a consensus that you need 70% of your annual pre-retirement income to live comfortably. However, it depends on how and where you live.

Here’s how you can begin to determine how much money you will need to retire.

Begin by calculating how much money you expect to have when you retire. That means looking at all the investment options and determining how much you have in each. If you are between the ages of 50 and 70, the U.S. Department of Labor offers a retirement planning tool that enables you to calculate your income and outflow.

Next, look at your expenses. It may be difficult to anticipate the cost of items somewhere in the distant future; however, at least start by gathering a list of how you expect you will spend your income. Expenses typically include things such as your home, medical costs, food, and utilities.

Your expenses will likely change as you age; perhaps more money will go to medical costs and less to clothing. However, planning now can go a long way toward ensuring you have enough money to cover your expenses.

Finally, look at your anticipated income versus your expected outflow, and you’ll get a good idea of whether or not 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, you have options. Here are five things you do:

  • If you have an employer-sponsored retirement plan (like a 401k), contribute as much as possible
  • Stay employed longer by putting off retirement until later
  • Start now to cut needless expenses and don’t take on any new, large debts
  • Work to your full retirement age and delay taking Social Security until you’re 66 or older
  • 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:

  • Allow tax-advantaged accounts, like IRAs, 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

The most important thing is to start saving as soon as possible. Go to our investment advisors or brokerages comparison pages and see which company is best for your goals and circumstances.