Financial Planning For Retirement – How to Get Started

Whether you’re just starting to plan for retirement or you’ve been saving for years, the time to start financial planning for retirement is now. Getting the ball rolling will help you avoid financial stress in retirement.

The best approach is to start with tax-advantaged retirement plans like 401(k)s and individual retirement accounts (IRAs) and contribute enough to get the full company match if your employer offers it.

Determine Your Financial Needs

Whether you’re financial planning for retirement or your 50th, it’s essential to determine how much money you will need to retire comfortably. This will help you choose a savings target and set goals.

The best way to do this is by calculating your income replacement rate. According to Roger Young, CFP (r), a thought leadership director with T. Rowe Price, this is the percentage of your preretirement income you will need to replace after retirement.

To calculate your income replacement rate, start by estimating how much you expect to receive from Social Security and any guaranteed sources of income, such as pensions or retirement accounts. Then, calculate how much you need from other sources to cover your expenses.

Set Goals

Having goals for your retirement will give you direction and a sense of accomplishment. They also can be a motivation to save money every month.

Identify short, medium, and long-term goals you want to achieve in retirement. Examples include buying a house, traveling, or providing for your grandchildren.

Many experts recommend putting away at least 15% of your gross income toward retirement annually. Track your weekly spending and identify where to put extra money aside to reach this goal.

Create a Budget

Creating a budget is an essential step in financial planning for retirement. It can help you determine how much you will need to save and how much income you can expect from Social Security, pensions, 401(k) plans, IRAs, and annuity payments.

To create your budget, start by analyzing your spending trends from the past year or so. This will help determine if you need to cut back in any areas.

The next step is categorizing expenses into “essential” and “non-essential” categories. Essential costs include food, clothing, housing, utilities, transportation, and health care.

Non-essential expenses are your discretionary spendings, such as travel, grandkid outings, sports, and entertainment. Make sure these expenses are included in your budget so you can decide if they are worth the extra expense.

Create a Savings Plan

Whether you’re saving for retirement or an emergency, a savings plan will help you achieve your goals. Start by calculating how much money you can save each month based on your income and spending.

Once you’ve established a savings goal, create a budget that reflects your savings goals. For example, if your goal is a vacation, set up a particular account to put away a set percentage of your monthly income toward your travel goal.

Putting a small amount of your income toward your long-term goal is one of the easiest ways to build up your savings. Depending on your finances, make this an automatic process through a recurring deposit from your checking account into a linked savings account.

Create a Retirement Income Plan

A retirement income plan helps you predict your spending needs over the long haul. This is particularly important when drawing down your savings and investment accounts.

Your retirement income strategy should include reliable sources such as Social Security, a lifetime annuity, pension income (if available), and required distributions from IRAs or workplace savings. These can cover 80% of essential expenses, while investments offer more flexibility for discretionary costs.

It is also wise to delay taking Social Security benefits until your full retirement age, which can help maximize your payouts. It’s also a good idea to meet with your financial professional at least annually to review your plan and ensure it’s still working for you.

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