How to Plan for Retirement

No matter where you are in life right now, the time to plan for retirement and start saving is today.

We've already gone over how to save for retirement. Now it's time to talk about how to plan for retirement. Retirement is an especially important thing to plan because in order to retire successfully, you have to enact plans well in advance. 

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How Old Do You Need to Be to Retire? 

Theoretically, you can retire whenever you want to, so long as you have the funds to support yourself while in retirement. The only age requirements that exist for retirement are how old you must be to start receiving Social Security benefits. To get Social Security benefits, you must be at least 62 years old. This means that if you need Social Security to retire, then you need to be at least 62 years old to retire. 

Taxes on Retirement Income

Are there taxes on retirement income? This all depends on how you set up your retirement savings account and how you added to that account.

Some retirement savings accounts are set up for you to pay taxes on that money now, so you don't have to pay taxes on it later when you're retired. But other accounts won't charge taxes now so that the account can possibly grow faster, but then you will need to pay income taxes on that money later. 

Steps to Planning Your Retirement

Planning for retirement might feel intimidating, but it doesn't have to be. Retirement planning also isn't something that you should put off for later. 

Planning for retirement is something that financially savvy individuals are working on right now.

Step 1: Discuss Your Retirement Plans

Retirement is a phase of life that comes with a lot of questions that need answering. If you have a partner, this is the time to sit down with them and talk about retirement plans and answer these key retirement questions.

By filling out this retirement questionnaire, you'll have a better idea of what you and your spouse's retirement plans and expectations are. 

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Download a Retirement Questionnaire.

Retirement Questions to Ask Yourself: 

  • What will you do in retirement?
  • When do you want to retire? 
  • Where do you want to retire? 
  • Will you and your spouse retire at the same time? 
  • Will you still want to work at all in retirement? 
  • Will your spouse still want to work at all in retirement? 
  • Will you want to travel during retirement? 
  • How much money do you want to live on each month during retirement? 
  • How much will I need to save in total to achieve this goal? 
  • How much do I want to save for medical expenses? 
  • How will inflation change how much money I need saved? 
  • Which retirement plan sounds right for me?

Step 2: Have a Retirement Goal

After you answer the retirement questions above it's time to start creating some retirement goals. Having a retirement goal will give you something definite to work toward as you save, plan, and prepare for your future retirement.

Make a goal for how much you want to have saved in total for your retirement years. From this goal you can then calculate how much you need to save each year now to meet this savings goal.

How Much You Want Saved / How Many Years You Plan on Saving = How Much You Need to Save Each Year to Retire

Step 3: Save at Least 10% for Retirement

You want to save at least 10% of your income for retirement. With every paycheck you get, put 10% of it aside into the retirement fund of your choosing.

Saving 10% of your income for retirement is also a great place to start if you're still unsure about your answer to many of the key retirement questions. If you aren't sure what your retirement plans are, then at least start saving 10% today.

If you do have a clear picture of where you want to be financially during retirement, then you can increase or decrease this percentage as needed. 

For example, if you make $5,000 a month, then you'll want to save at least $500 a month in a retirement fund. If you save only 10% of your income every year, then after 20 years you'll already have $120,000‬ saved up for retirement. 

Monthly Income x 0.10 = Monthly Retirement Savings

$5,000 x 0.10 = $500

$500 x 12 (months of the year) = $6,000 (saved for retirement each year)

$6,000 x 20 (years) = $120,000‬ (saved for retirement in just 20 years)

But even if you can't afford to put away 10% of your monthly income into a retirement fund, 5% will still help you start building those retirement savings.

Step 4: Make Long-Term Investments

Another great way to save for retirement is to make smart, long-term investments. Investing works well for retirement savings because good investing takes time.

There are also endless ways you could start investing for the future. You could try using a simple investment app to get you started. Then, once you're a little more comfortable with the stock market, you can start acquiring larger long-term financial assets for the future. 

Step 5: Plan for Retirement Insurance

Many insurance plans are linked to our jobs, but during retirement, you probably won't have a job. Some employers do include types of health insurance plans for their employees who retire. You'll want to talk to your employer about such plans, so you understand the benefits available to you. 

One insurance plan you can investigate for retirement is a Long-Term Care (LTC) Insurance plan. By purchasing an LTC plan, this insurance plan will protect your retirement savings and help pay for your long-term care, like a retirement home, should you need it later down the road. 

You can also start saving in a Health Savings Account (HSA) or a High-Deductible Health Plan (HDHP). A health savings plan will help you also save for future medical costs in retirement.

Step 6: Get Debt Free Before Retirement

Debt is a very common and useful financial tool. Many people need to use debt and loans to finance a car, their home, or a college degree. But debt isn't something you want to still have by the time you retire. 

Make plans today for how you can become debt-free by the time you're ready to retire. Part of this plan is to focus on the unnecessary debts you currently have and paying them down quickly. This includes things like loans or credit card debt. Then make plans to avoid all unnecessary debt wherever possible. 

Then you can focus on tackling more necessary types of debts like student loans, a home mortgage, and car loans. Make sure your loan payment plans on these things don't extend into your retirement years but are structured to end before you reach retirement age. 

For example, if you buy a home when you're 35 years old, and you have a 30-year mortgage plan, then you won't be finished paying off your home until you are 65 years old. That also means, that you probably won't be able to retire until you are at least 65 years old.

If you want to make sure you can retire at the age you want, then considering a shorter year term for your mortgage might be necessary.  

In Conclusion,

Retirement is an exciting new time in your life. After diligent saving and planning, it's now time to do whatever you want! This might include visiting more with grandkids, taking up hobbies like gardening, or taking some time to travel to places you've never been. With some diligent retirement planning on your part, you can know how to plan for retirement and rest at ease knowing your retirement years are taken care of.