Retirement Income Planning: Getting Started

Many of us dream of retiring at 50. More often than not, we’re still planning for it at 60. There’s no doubt about it, the hardest part of the retirement planning process is getting started. The days of being able to retire on social security alone are long gone, and today’s retirees must rely on personal investments and/or earnings as well. Whether you’re 30, 40, 50 or 60, here are a few tips to get you on track for a rich and rewarding retirement. Step #1: Make retirement income planning your top priority. The closer you are to retirement age, the more important it is to make saving for retirement your primary focus. And the closer you are to retirement, the more you must allocate to your retirement account. Step #2: Organize your financial records. Put all your investment records in a file box or binder and organize by type: IRAs, 401Ks, savings bonds, social security, etc. One of the keys to retirement income planning is to keep track of you’re doing. Another key is to consolidate and pay off your debt. Step #3: Understand how much you need in your retirement account to retire comfortably. Whether you use one of the standard formulae or itemize your expense estimates, this is a critical step.

There are lots of variables that will affect this number. For example…

• Do you want to continue working part time or in a less stressful or demanding job? If you think you’ll have earnings in your retirement, estimate them conservatively.
• Do you have a pension or 401K from work that will supplement your income?
• Would you consider moving to a location with a lower cost of living and a more leisurely lifestyle? For some ideas, see our retirement communities section.
• Are you amenable to trading down to a smaller house so that your housing costs are reduced? If you’ve owned your home for many years, you may even be able to reinvest the equity into your retirement account.

There are some great retirement planning tools online at sites – such as Fidelity’s Retirement Income Planner - that can help you estimate how much you’ll need in your retirement account to achieve your retirement dream.

Step #4: Develop your savings plan. Here are some options recommended by the experts:

• Workplace retirement plans with employer matched contributions are optimal savings plans. These include 401Ks, 403(b), 457 or SIMPLE IRA accounts. If you or your spouse qualify for one of these plans, consider contributing the full amount to receive the maximum employer match. Not only are any employer contributions essentially free money, the contributions and earnings are tax deferred if you comply with the requirements.
• Even when they are unmatched, tax advantaged accounts can be smart retirement planning options. After tax contributions to Roth IRA or Roth 401(k) accounts and deductible contributions to Traditional IRA’s fall into this category. Because there are penalties for tapping these accounts before you reach retirement age, the temptation to spend these dollars is lessened.
• Make sure your savings are automatically deducted from your paycheck so that your retirement saving is as painless and transparent as possible. You’ll find that it’s a lot easier to scale down your lifestyle to meet your budget if your allotments to your retirement account are deducted before the money is deposited into your checking account.

Step #5: Be accountable. To yourself, your spouse, your financial planner or asset manager if you have one. The best way to stay on track is to make promises that you want to keep. And a little guidance from a retirement planning expert can go a long way to achieving your retirement dream.