5 PlanningTips To Set You Up For Retirement Success

CI Radnor Private Wealth - Feb 03, 2022
Whether retirement seems right around the corner or way off in the distance, it’s never too late—or too early—to start planning. Retirement planning is not a one-and-done activity—it’s a dynamic process that…
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Whether retirement seems right around the corner or way off in the distance, it’s never too late—or too early—to start planning.  Retirement planning is not a one-and-done activity—it’s a dynamic process that can and should be revisited over time to bolster your nest egg.  If you haven’t already, start now – and consider these 5 planning tips to set you up for a financially secure and enjoyable retirement:

  • Understand your time horizon.

    Your current age, expected retirement age, and life expectancy will be important factors in determining your savings rate and portfolio allocation.  In general, the younger you are, the more volatility your portfolio can absorb.  With time on your side, the majority of your assets may be allocated to riskier investments with higher returns, such as equities.  As you get older, your asset allocation may be more weighted towards income generation and capital preservation.  As a result, periodically rebalancing your portfolio over the course of your time horizon becomes important.

    Savings rate can also change with age.  By starting early, you can benefit from the power of compounding, which means that you won’t need to save as much each year to hit your targeted retirement savings.  If you begin saving later in life, you’ll likely have to set aside much more on an annual basis to catch up.

  • Assess your savings plan options.

    Does your employer offer 401(k) matching, profit-sharing, or pension contributions?  If so, take advantage.  Oftentimes when you contribute to your employer-sponsored plan, the employer will match all or part of your contribution.  In addition, retirement account contributions can help to lower your taxable income.

    If you are self-employed, consider contributing to a SEP, SIMPLE, or individual 401(k).  These plans can allow for salary deferrals as well as contributions based on net earnings from your self-employment.

    IRAs can also be used as retirement savings accounts for any individual with earned income.  Spousal IRAs enable married couples to save for the retirement of a non-working spouse, provided that one spouse has earned income.

    Lastly, Roth IRAs/401(k)s can be useful retirement savings tools for anyone who would prefer to make contributions with after-tax dollars.  By paying the tax up front, the investment grows tax-free, and qualified withdrawals during retirement can be made at no additional tax cost.  This type of retirement account is especially attractive for those individuals who expect to be in a higher future income tax bracket, since it takes advantage of a lower current tax bracket.

  • Determine the important age milestones in your retirement plan.

    Retirement benefits can be impacted—for better or worse—by financial decisions that investors make upon reaching a certain age.  Financial advisors can help you understand the implications that any single decision may have on your financial situation as you reach an age-based milestone:

    • Age 50: extra “catch up” contributions become allowable for many retirement plans such as 401(k)s and IRAs.

    • Age 55: you may start withdrawing from your current 401(k) or 403(b) if you separate from service.

    • Age 59 ½: you may begin withdrawing from your retirement accounts without penalty.

    • Age 62: you may begin collecting Social Security, but at a reduced monthly benefit.

    • Age 65: Medicare eligibility begins.

    • Age 66-67: depending on your birth year, full retirement age for Social Security may begin.

    • Age 70: latest possible delay in collecting Social Security benefits, delaying beyond full retirement age increases the monthly benefit.

    • Age 72: required minimum distributions (RMD) begin for many retirement accounts. You must take your first RMD by April 1 of the year after you reach 72.

  • Establish your spending goals in retirement.

    Some experts estimate that 70-90% of pre-retirement income will be needed annually to maintain an individual’s same standard of living during retirement.  However, this is not a one-size-fits-all “magic number”—what you truly need to save for retirement depends on your individual goals.  For example:

    • Are you planning to pay off a mortgage during your retirement?

    • Are you hoping to purchase a second home?

    • Do you intend to travel or vacation more often?

    • Would you like to make gifts to your children, grandchildren, or your favorite charities?

    • What happens if unexpected medical bills arise?

    • Your bottom line may be impacted by how active of a lifestyle you choose to lead, as well as your general health and well-being.  Consider the above questions when evaluating your anticipated retirement spending, and understand where you might need wiggle room in your spending habits in case adjustments are needed down the line.

  • Hold yourself accountable to your plan.

    Once you’ve established your retirement savings goals, it’s important to draft a plan and implement it.  Prioritize retirement savings as early as you can—it will make achieving your end-goals that much easier.  While it’s critically important to stay committed to a savings plan over time, keep in mind that a healthy plan is designed to evolve.  It can and should be revised whenever your income, savings, or goals may change.  A trusted financial advisor can work with you to create and maintain a customized plan in order to help you stay the course toward a successful and rewarding retirement.