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In This Article:

• What is Retirement Planning?
• Why is Retirement Planning Important?
• Setting Retirement Goals
• Assess Your Retirement Needs
• Create a Savings Plan
• Start From Where You Are
• Women and Retirement
• Choosing the Right Retirement Accounts
• Comparing Retirement Accounts
• Investment Strategies for Retirement
• Tax Diversification
• Boost Your Social Security Benefits
• Healthcare and Long-Term Care Planning
• Estate Planning and Your Legacy
• The Bottom Line

Retirement planning can be likened to preparing for a long-awaited vacation. After dreaming about it, organizing each detail, and executing on your vision, you want to savor every moment without worrying about finances. How do you bring that plan to life? By laying a solid foundation in advance.

To help make sure your golden years are golden, this comprehensive guide delves into everything you need to know about retirement planning, from setting goals and choosing the right retirement accounts to considerations around your Social Security benefits, healthcare costs, and more. If you’re looking for ways to manage your financial future, this guide is for you.

What is Retirement Planning?

At a high level, retirement planning is about determining your retirement income goals and identifying the actions you need to take to reach those goals. This generally involves reviewing your various sources of income, tracking your expenses, implementing a savings program, and then managing your assets to help you finance your desired lifestyle after you stop working.

Although financial considerations are a core focus of any retirement plan, the process also involves minimizing taxes, planning for healthcare, and preserving your family’s wealth. This comprehensive approach can help you build a robust plan that provides confidence.

Questions about retirement planning? Reach out today.

Why is Retirement Planning Important?

Retirement planning matters because it sets out a process to get financial security, ensuring you have enough money to enjoy your retirement. With a proper plan in place, you can maintain your desired standard of living even as your income sources shift from employment to savings and investments.

On the flip side, if you fail to plan for retirement, you run the risk of outliving your money and potentially accumulating debt or relying on family or government support to cover your living expenses. Additionally, without a plan, you could miss out on opportunities to grow your savings and investments—and may even find yourself unprepared for unexpected events, such as medical emergencies or market fluctuations, which could otherwise derail your financial stability.

Discover more:

• 5 Retirement Horror Stories to Help You Avoid Mistakes in Retirement Planning
• 11 Retirement Planning Myths and Mistakes You Need to Know
• 3 Retirement Planning Tips for Late Starters

Setting Retirement Goals

To understand how much money you will need during retirement, start by thinking through your desired retirement lifestyle. Consider where you want to live, how you’d like to spend your time, and any hobbies or travel plans. This will help you estimate the financial resources required to support your vision.

Assess Your Retirement Needs

Once you pinpoint your retirement goals, you can begin to assess your anticipated living expenses and financial obligations. A good place to start is by considering your current living expenses for housing, food, utilities, transportation, and healthcare and then determining how those expenses might change during retirement. For instance, you might pay off your mortgage, reducing your housing costs, but you may also face increased healthcare expenses as you age. You also need to factor in inflation and your life expectancy to help you assess how many years your retirement savings may need to last. While this is impossible to pinpoint, you can look at factors like your current health and the longevity of family members.

To get a realistic estimate, consider using retirement calculators available online (you can even use the Wealth Enhancement retirement calculator). These tools can help you plan your future expenses based on your current spending habits and anticipated lifestyle changes. Remember to account for both essential and discretionary expenses, and to create a buffer for unexpected expenses, such as home repairs or unforeseen medical bills. Additionally, plans for long-term care or assisted living expenses, which can be substantial.

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Create a Savings Plan

With an understanding of your financial needs in retirement, you can set realistic savings goals to meet those needs. The amount you put aside each month will depend on factors such as your current savings, expected returns on your investments, and your estimated Social Security benefits. You will also need to assess how much money you can allocate to your retirement accounts based on your current income and expenses. As a rule of thumb, you’ll want to prioritize paying off high-interest debt and setting up an emergency fund before you begin allocating money towards your retirement savings.

Start From Where You Are

The earlier you start to plan for retirement, the better positioned you will likely be to reach your goals. This is not only due to the power of compound interest working in your favor, but also because it encourages a lifelong savings habit. That said, there are many strategies available, no matter what age you are, that can put you on the path to a planned retirement. By working with a financial advisor, you can gain a clear understanding of the steps you need to take to put a realistic plan into place.

Discover more:

• How to Boost 401(k) Contributions Without Busting Your Paycheck
• Your Guide to Catch-Up Contributions
• RealityCheck™: Planning Ahead for a Confident Retirement
• Retirement Planning by Life’s Decades
• Retirement Milestones by Decade
• Retirement Planning Timetable

Women and Retirement

Retirement planning is crucial for everyone, but it introduces particular challenges for women. With longer life expectancies, as well as reduced earning potential due to the gender pay gap and other factors (like taking time off for pregnancy or caring for family members), women face a unique set of obstacles in preparing for retirement when compared to men. To overcome these challenges, it’s important to approach retirement planning strategically by creating a realistic retirement budget, effectively diversifying your portfolio, planning for tax efficiency, optimizing your Social Security, and expanding your investment knowledge. With proper advance planning, you can claim the retirement you’ve always wanted.

Discover more:

• How to Overcome Women’s Retirement Challenges
• 6 Ways to Bridge the Wage Gap Between Men & Women When Retirement Planning
• Values-Based Retirement Planning for Women: Simple & Powerful Strategies
• Retirement Planning for Women: 7 Strategies for Success

Choosing the Right Retirement Accounts

Once you’ve identified your retirement goals and structured a savings plan, it’s time to select the retirement accounts that are right for you. To make an informed choice, it helps to understand the differences between the various types of retirement accounts. Here’s a quick breakdown:

• 401(k) plans are employer-sponsored retirement savings plans that allow employees to contribute a portion of their salary on a pre-tax basis, which reduces your taxable income. Contributions grow on a tax deferred basis and only become taxable on withdrawal during retirement, when you are more likely to be in a lower tax bracket.
• Traditional Individual Retirement Accounts (IRAs) allow you to make contributions on a pre-tax basis, with taxes on earnings deferred until retirement.
• Roth IRAs allow you make contributions with after-tax dollars, which means you’ll receive no tax deduction in the years in which you contribute. However, qualified withdrawals can be made on a tax-free basis.
• Savings Incentive Match Plan for Employees (SIMPLE) IRAs are similar to 401(k) plans but are designed for small businesses. Contributions are made on a pre-tax basis and become taxable on withdrawal.
• Simplified Employee Pension (SEP) IRAs are plans for self-employed individuals. Contributions are tax-deductible and earnings grow on a tax-deferred basis.

Comparing Retirement Accounts

When choosing a retirement account, you’ll want to consider factors such as tax advantages, contribution limits, the types of investments available within the account, and the rules for withdrawing funds.

Tax advantages vary between accounts. For example, 401(k) plans and traditional IRAs offer tax-deferred growth, while Roth IRAs provide tax-free withdrawals. Contribution limits also differ, with 401(k) plans typically allowing higher annual contributions than IRAs. Employer contributions can significantly boost your savings, so take advantage of any matching contributions offered by your employer.

Investment options within retirement accounts can vary widely. Some plans offer a broad range of investment choices, including stocks, bonds, mutual funds, and exchange traded funds (ETFs), while others may have more limited options.

Withdrawal rules are another important consideration. Traditional IRAs and 401(k) plans require you to start taking required minimum distributions (RMDs) at age 73, while Roth IRAs do not have RMDs. Understanding these rules can help you plan your withdrawals to manage retirement income.

Discover more:

• The Complete Guide to Retirement Accounts
• Should You Be Maxing Out Your 401(k) at the Beginning of the Year?
• Tax Implications of a Roth Conversion
• Traditional IRA vs. Roth IRA: What Are the Tax Benefits?
• Roth IRAs vs. Roth Employer Plans
• The Pros and Cons of Rolling Your 401(k) to an IRA

Investment Strategies for Retirement

Although there is no one-size-fits-all approach to structuring an effective retirement portfolio, you may want to consider some of the following strategies:

• Diversify your portfolio. Diversification involves spreading your investments across different types of holdings to manage risk. Some of the common approaches include diversifying by asset class (like stocks, bonds, and commodities), by industry, by company size or company stage, and/or by geography. A diversified portfolio can help mitigate the effects of market volatility while reducing the impact of poor performance in any single asset class, industry, company, or geography.
• Balance risk and return. Investors with a longer time horizon often choose to allocate a larger portion of their portfolios to potentially higher-risk holdings, such as equities, as a way to grow their wealth over time. As you approach retirement, your investment strategy may become more conservative to preserve your capital and generate income. Yet these are only general guidelines. To effectively balance risk and return, it’s important to work with a financial advisor who can take your risk tolerance into account when structuring your portfolio.
• Monitor and adjust your portfolio. Investing for retirement is not a once-and-done exercise. As your goals change, you’ll want to regularly review and adjust your portfolio accordingly. This includes rebalancing to maintain your desired risk level, responding to market changes or economic shifts, updating your retirement plan based on significant life changes such as marriage or health issues, and assessing the performance of your investments to make necessary adjustments.

Tax Diversification

While diversification is a familiar concept in the context of your investments, not everyone realizes the importance of tax diversification when it comes to structuring a retirement plan. Tax diversification means owning assets in various retirement accounts that are taxed differently so you can manage your taxes both while working and in retirement.

In essence, investments fall into three different tax categories:

• Tax-deferred plans provide you with an immediate tax deduction while your earnings grow tax-free. Taxes only become payable when you begin withdrawals. Examples include 401(k)s and traditional IRAs.
• Taxable investments are made with after-tax dollars and any earnings are fully taxable at year-end. Examples include taxable brokerage accounts.
• Tax-advantaged plans allow you to make contributions after tax, so you don’t get an immediate deduction. However, earnings grow tax-free, and you won’t owe tax on qualified withdrawals. Examples include Roth IRAs and Roth 401(k)s.

A tax diversification strategy helps you determine which types of investments will be most advantageous to you as your personal tax rate shifts over time. It can also help you assess if—and when—a Roth conversion makes sense for you.

Discover more:

• 4 Elements of Strong Investment Portfolios
• How to Avoid 3 Threats to Your Sustainable Retirement Income
• Risk Management and Your Retirement Savings Plan
• How to Create a Flexible Retirement Plan
• 3 Retirement Tax Mistakes You Can’t Afford to Make
• How to be Tax Savvy in Retirement
• 5 Tax-Efficient Retirement Strategies

Boost Your Social Security Benefits

Understanding how Social Security works and how to grow your benefits can significantly impact your retirement income. Social Security benefits are calculated based on your highest 35 years of earnings. While you can start receiving benefits as soon as you reach age 62, delaying benefits until your full retirement age (FRA) or even age 70 can increase your monthly payments considerably.

Deciding when to start taking Social Security depends on various factors, including your financial situation, health, life expectancy, and retirement goals. If you need income immediately or have health issues that may shorten your life expectancy, it might make sense to start benefits early. However, if you can afford to wait and expect to live a long life, delaying benefits can significantly increase your lifetime income.

You may also want to explore the advantages of coordinating benefits with your spouse. For example, a lower-earning spouse can start taking benefits early while the higher-earning spouse delays benefits. This can provide some income early on while still growing the overall household benefits.

Another strategy is to continue working if you have high-earning years. Social Security benefits are based on your highest 35 years of earnings, so continuing to work can replace lower-earning years with higher earnings, increasing your benefit amount.

Discover more:

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• When Should You Take Social Security?
• 3 Things You Need to Know Before Claiming Social Security Benefits
• Social Security Benefits for Divorced Spouses: an FAQ
• How to se Social Security Benefits for Singles
• Early vs. Late Social Security Benefit Election

Healthcare and Long-Term Care Planning

Healthcare can represent one of your largest expenses in retirement. Understanding what Medicare covers and what it doesn’t is crucial. Medicare is a federal program that provides health insurance for people aged 65 and older, but it doesn’t cover all healthcare costs. For example, Medicare Part A covers hospital stays, Part B covers outpatient care, and Part D covers prescription drugs, but there are deductibles, co-payments, and co-insurance costs that you need to consider.

To account for potential gaps in coverage, consider purchasing supplemental insurance and/or setting up a Health Savings Account (HSA). For its part, long-term care insurance can help cover the costs of assisted living, nursing homes, and in-home care. Research the cost of long-term care in your area and compare policies and coverage options. It is often best to purchase insurance in your 50s or early 60s for the most favorable rates. Premiums increase with age and health conditions, so buying a policy earlier can save you money in the long run.

Discover more:

• 4 Ways to Bridge the Health Care Gap in Early Retirement
• Debunking 4 Common Medicare Misconceptions
• Long-Term Care by the Numbers
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Estate Planning and Your Legacy

A final element in your retirement plan involves taking steps to preserve your assets and shield your family after you pass. At the very least, aim to draft a will to outline how your assets should be distributed after your death. This is essential for naming beneficiaries, appointing guardians for minor children, and ensuring your estate is distributed according to your wishes rather than in accordance with state law.

In some cases, you may also want to set up a trust. A trust is a legal arrangement that allows a third party (the trustee) to manage your assets on behalf of your beneficiaries. Trusts can help avoid probate, reduce estate taxes, manage assets from creditors and legal claims, and help that assets are managed for the benefit of minor children or disabled dependents.

Additionally, consider having a power of attorney and/or healthcare directives drafted in the case of your incapacity. A power of attorney grants someone authority to manage your financial affairs, while a healthcare directive specifies your medical treatment preferences and appoints a healthcare proxy.

By creating these legal documents, you can plan your financial and medical affairs are handled according to your preferences, providing confidence for you and your loved ones.

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• How to Avoid Estate Taxes With an Irrevocable Life Insurance Trust
• Special Needs Trust: What Is It and How Does It Work?

The Bottom Line

Given all the elements involved, retirement planning may seem overwhelming—but you don’t have to go it alone. A financial advisor can help you clarify your retirement goals, create a budget and savings plan, structure a portfolio that aligns with your financial objectives and risk tolerance, and keep tax efficiency in mind. They can also help you understand your Social Security benefits, plan for future healthcare costs, consider your insurance requirements, and put an effective estate plan into place. If you’d like to create a retirement plan tailored to your individual circumstances, reach out to your financial advisor today.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

There is no guarantee that asset allocation or diversification will enhance overall returns, outperform a non-diversified portfolio, nor ensure a profit or protect against a loss. Investing involves risk, including possible loss of principal.

There can be no assurance that any particular investment objective will be realized or any investment strategy seeking to achieve such objective will be successful. Investing involves risk, including possible loss of principal.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. Investing involves risk, including possible loss of principal.