Most of us plan to retire at some point and enjoy our golden years. Some of us, however, will be forced to retire due to health or other circumstances. In any case, planning ahead to have security for the future is important for us all.
There is no hard and fast rule as to what a retirement plan should contain. It can be very simple or extremely detailed. You can develop it yourself or seek the advice of a professional financial advisor. Regardless of the scope of your plan, here's the basic steps you need to take:
Just start saving. Set aside 15% of your pre-tax income into a retirement account. If you're in your 40s or 50s, and just starting to save for retirement, you'll need to bump that up to 25% or more. And, you'll need to plan on working a few years longer.
Take advantage of any 401(k) matching offered by your employer and consider the differences between a Roth and Traditional IRA to determine which is best for you. Consult a professional financial advisor about risk-based investments, such as mutual funds, stocks and bonds.
Calculate how much you will have for retirement based on your current annual savings and years left till retirement. You should plan on 80% to 100% of your pre-retirement income for each year you will spend in retirement. Your retirement income could come from three sources: employee retirement plans, personal savings and investments, and social security benefits.
Outside of retirement, what else do you need to save for? College education? Home purchase? Traveling? Fine tune your budget to incorporate all your savings goals. Check out our managing money and budgeting tips. Determine how much money and time it will take to reach each of your financial goals. And don’t forget to factor in inflation.
Your income and expenses are only part of the financial puzzle. You also need to identify everything you own (your assets) and everything you owe (your liabilities) before you can tell how realistic your retirement and other savings goals are.
Check your progress at least once a year and revised your plan as necessary. Changes in the economy, your income and your expenses could significantly impact your savings plan. Make sure you stay on top of it and seek the assistance of a professional financial advisor if you need help.
Before you set a date to leave the workforce, there are a few things you’ll need to think about first:
Review the three sources of income in your retirement portfolio (employee retirement plans, personal savings and investments, and social security benefits).
Specifically, you’ll need to:
Add up the income you expect to receive in retirement and compare it with your projected expenses. If it’s not enough to maintain your desired standard of living, you may want to delay your retirement.
If you’ve decided to go ahead and retire, you’ll need to choose the month you want to start receiving Social Security benefits. There could be long term benefits in delaying your social security benefits. If you plan to retire within the next 12 months, arrange to talk with a Social Security Administration representative.
Apply online at www.ssa.gov,Opens in New Window or make an appointment for your application to be taken over the phone or in person at the local Social Security office. When you apply, you’ll need to provide the following documents:
You may also be asked for the following information:
Don’t put off retiring if you’re having trouble tracking down a particular document or bit of information. A Social Security representative may be able to help.