Retirement planning

With today’s long life expectancies, your retirement could end up lasting 20 to 30 years — roughly the same length of time you spend in the workforce. Make those years truly golden with a solid retirement plan.

What is retirement planning?

Retirement planning is the process of identifying your retirement goals and then deciding what actions you need to take to reach them. There are two ways to get there: accumulation and cash flow.

How to start planning for retirement

There are four simple steps you can take to start planning for retirement:

1. Set your retirement goal

Think about what your dream retirement looks like. Will you travel the world? Start a passion project? Spend more time with family?

Having a clear picture of your life during retirement will help you figure out how much money you’ll need to fund it.

Start by calculating how much money you’ll need for retirement. Then decide if you can realistically save that much given your age and potential retirement date.

If it’s out of reach, consider adjusting your expected lifestyle until you find a happy medium. This could include pushing back your retirement date so you have more time to save, downsizing your home, or relocating to an area with a lower cost of living.

2. Choose your retirement assets

There are many types of assets you can use to fund your retirement. But you’ll maximize your cash flow if you use a mix:

• Social Security. Start collecting Social Security as early as age 62, but your monthly payout increases the longer you wait until age 70.
• Retirement accounts. Save for retirement using tax-deferred plans like 401(k)s, 403(b)s, 457s and traditional IRAs. Or open a tax-exempt account, such as a Roth IRA.
• Investment accounts. Invest in stocks, bonds, mutual funds and more through a taxable investment account and use the money to fund your retirement.
• HSAs. These are for more than medical expenses. Once you reach age 65, you can use this account for anything — from everyday living expenses to vacations.
• Annuities. These are a type of insurance that turns a lump sum of money into a consistent stream of income for a set period.
• Pensions. These retirement plans offer guaranteed income, but they’re quickly being replaced with 401(k)s and other employer-sponsored plans.
• Home equities. Take out a home equity line of credit and borrow the funds all at once or over time.
• Reverse mortgages. Retirees over age 62 can pull equity out of their current homes and use it for cash flow.

3. Protect your retirement assets

There are many unexpected risks that threaten your retirement savings. Put a plan in place to protect your assets from any curveballs life may throw your way:

• Inflation. With a retirement that could last 20 to 30 years, inflation remains a major threat to your nest egg. Make sure your investment strategy balances protection and growth.
• Unexpected medical bills. Consider buying long-term care insurance to help cover the rising costs of assisted living facilities, home health aides, nursing homes and more.
• Creditors. Protect your savings from creditors by maximizing out 401(k) and pension plans, which are often protected from general creditors.
• Lawsuits. If you lose a lawsuit, a creditor can’t go after any employer-sponsored retirement plans because they’re protected by the Employee Retirement Income Security Act (ERISA).
• Taxes. You’ll minimize your tax burden by creating a tax-efficient withdrawal strategy that balances a mix of tax-deferred and tax-exempt accounts each year.

4. Plan your retirement distributions

A tax-efficient withdrawal strategy will keep more money in your pocket as you move through retirement. Ideally, you want to use a mix of Social Security, tax-deferred and tax-exempt accounts each year. This keeps your taxable income low, which will save you money when you file taxes.

For most retirement assets, you can delay withdrawing funds as long as you’d like. But some tax-deferred accounts require you to take minimum distributions once you hit 72.
These accounts include:

Note: Roth IRAs aren’t subject to required minimum distributions (RMDs) because you fund them with after-tax dollars.

Retirement planning for each stage of life

Your retirement planning needs to shift as you get older. This should be your main focus at three different stages of life:

Young adulthood

When you’re starting out in your career, money is tight and retirement seems ages away. But time is on your side. Every little bit you save has decades to compound and earn interest. That’s why saving should be your number one priority — even if you can’t save much.

Take advantage of any employer-sponsored retirement plans, including 401(k)s and 403(b)s. Many employers match contributions to these accounts, which puts even more money in your pocket.

You should invest at least enough to get 100% of your employer’s match each year. But you could contribute up to $19,500 in 2020.

You could also contribute up to $6,000 to a Roth IRA. You fund this account with after-tax dollars, but your earnings grow tax-free.

Middle adulthood

Middle adulthood presents its own unique challenges. You’re making more money, but you also have more financial responsibilities. You may have kids, a mortgage, student loan debt and more.

Your main focus should be on:

• Maxing out your retirement accounts each year
• Making sure you have adequate home, life and disability insurance coverage
• Taking advantage of an HSA if you have a high-deductible healthcare plan

Late adulthood

Once you hit late adulthood, you want to laser in on your retirement goals and identify any holes in your plan. If you’re off track, now is the time to figure out what actions you need to take to catch up.

If you’re at least 50, take advantage of catch-up contributions. You can contribute $1,000 more to HSAs and IRAs and $6,500 more to employer-sponsored plans. Your investment accounts should be more conservative than they were early on.

This is also the best time to look into long-term care insurance and calculate how much your Social Security payout will be.

Do I need a financial adviser?

There are many moving pieces to the retirement planning puzzle. During your working years, there’s a focus on calculating how much money you’ll need in retirement and how to save it. Once you enter into retirement, it shifts as you begin to focus on tax-efficient withdrawal strategies to ensure you don’t run out of money.

In complex situations like these, it may be best to hire a financial adviser who can provide professional retirement planning advice. Studies show that people who work with an adviser see an average 1% to 3% increase in their portfolio’s value than those who don’t.

The cost of a financial adviser varies. Some charge flat fees ranging from $1,000 to $5,000 a year. Others charge a 1.25% to 1.75% fee based on your total assets under management.

Robo-advisors are a cheaper alternative to human advisers. Some don’t charge any fees at all while others charge 0.30% and beyond.

Before you decide to hire someone, weight the complexities of doing it yourself against the fees and expertise of an adviser or robo-advisor.

Compare retirement accounts

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Name	Product	Minimum deposit to open	Annual fee	Available asset types
Facet Wealth Financial Planning		$0	$480 per year	Stocks,Bonds,Options,Mutual funds	Facet Wealth flat fee model allows them to deliver an affordable Facet Financial Life Plan and create greater access for families that are just starting—or with assets in retirement plans	Go to site More Info		loading Fetching your data...
Goldco		$25,000		Stocks	Goldco offers precious metals IRAs and helps you roll your existing retirement savings into gold or silver bullion.	Go to site More Info		loading Fetching your data...
Blooom			$45 per year	Stocks	After an analysis, Blooom will place the trades within your 401k, 403b, 401a, 457 or TSP plan account for a low flat fee.	Go to site More Info		loading Fetching your data...
Rocket Dollar		$0	$15 per month	Stocks, Bonds, Cryptocurrency, Real estate, Additional alternatives	A self-directed account gives you full control of your retirement portfolio, but you’ll need to pay a one-time setup fee of $360.	Go to site		loading Fetching your data...

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Bottom line

Proper planning is key to a happy retirement. Whether you’ve recently started your career or are a seasoned pro, it’s never too late to put a plan in place.

If you’re looking for expert guidance on how to prepare for your ideal retirement lifestyle, consider hiring a reputable financial adviser.

Frequently asked questions

• When should you start planning for retirement?

  The sooner you start planning for retirement, the easier it’ll be to hit your savings goals because you won’t have to save as aggressively each year. Whether you’re 20 or 50, it’s never too early or too late to get started.

• How much should I have in my 401k at 30?

  Your 401(k) balance should equal your annual salary by the time you hit 30, according to a Fidelity study. For example, if you make $50,000 a year, your 401(k) balance at age 30 should be $50,000.

• What percentage of my income should I save?

  It depends on your financial goals. Many experts use 15% as a general rule of thumb. Others suggest the 50/30/20 budgeting method where you allocate 50% of your income to needs, 30% to wants and 20% to savings.

  The best way to know how much you should save is to lay out your financial goals, then work backward to see how much money you need to reach them.

• How do I calculate my required minimum distribution?

  You can calculate your RMD by taking your account balance as of December 31 and dividing it by your life expectancy factor on the IRS Uniform Lifetime Table.

• What is the maximum 401(k) contribution for 2020?

  The maximum contribution limits for 401(k)s, 403(b)s and 457 retirement plans is $19,500 or $27,000 if you’re at least 50.