Retirement planning is the process of setting goals for your retirement years and then creating a plan to fulfill those goals. Executing a retirement plan requires most people to put aside some of their current income for long-term savings and investment. You can use tax-sheltered vehicles, such as traditional individual retirement accounts (IRAs) and employer pension plans, to fund part of your retirement plan with pre-tax dollars.
Living and Working Longer
Early in the process, you’ll want to decide at what age you’d like to retire. It might be a rough estimate at this point, subject to change as the years roll by. Many people today are living and working longer than those in previous generations. The Centers for Disease Control and Prevention reported in 2012 that the U.S. population’s average life expectancy rose to a record high of 78.8 years. Gallup polls show that in 2014, the average American expects to retire at age 62, up from the 2002 figure of age 59. Actual retirement ages have also crept up during this period, from 63 to 66 years of age.
You’ll need to make an educated guess about the percentage of your pre-retirement annual income to save for your post-retirement years, a figure known as the “replacement rate.” A 2013 research paper from Morningstar Investment Management indicated that the usual replacement rate of 70 to 80 percent may be too high by as much as 20 percent. Your individual replacement rate depends on several factors, including your earning power while working and your desired lifestyle after retirement.
Armed with estimates of your retirement age and your replacement ratio, you can start formulating a long-term plan that shows how much you’ll have to set aside each year to meet your retirement goals. Generational Strategies Group helps you determine the size of your retirement nest egg and the amount you can withdraw each year so that the money lasts through your expected lifetime. You can include other sources of retirement income, such as Social Security and company pensions. Generational Strategies Group provides long-term planning facilities that can help you organize the information in an easy-to-understand format and track progress toward your goals.
Explore Your Options
You might want to explore different options when setting up your retirement plan. You can work out variations of your plan in which you change your income estimates, the amount you save and invest each year, your expected rate of return on your investments, your retirement age or other factors. For example, you can experiment with the age at which you start receiving Social Security payments. You’re eligible for these payments at age 62, but the longer you postpone these, the more you’ll eventually get each month. You get the maximum payment if you wait until age 70 to begin drawing your Social Security payments. Another option is retiring in stages, gradually shifting from full-time employment to part-time work that you can do at home, such as writing or consulting. You might also need to adjust your assumptions about your post-retirement lifestyle.