The main goal of a successful retirement plan is to ensure that you have adequate financial resources to maintain or enhance your lifestyle during your retirement years. If you’re retired and want to travel and shop more, you’ll need to save more. The amount you need to save depends on how you plan to spend your retirement.
According to some financial planning experts, you should save enough so that your retirement income is between 70% and 80% of your pre-retirement income. You need a higher percentage if you want to improve your standard of living. If you have more expenses when you retire than before, your retirement income may need to be higher than your pre-retirement income.
Building your savings requires careful planning that includes evaluating your current wealth, the years until retirement, and potential savings in the years leading up to retirement. In this article, we list some of the steps you need to take when setting up your retirement plan.
A popular approach to retirement planning begins with determining how much you need to fund your retirement years.
This is generally based on projected cost-of-living increases, the number of years you expect to live in retirement, and the lifestyle you want to lead in retirement. But extrapolating a quantity is not an exact science. The years you spend in retirement may be longer or shorter than planned, and the cost of living may increase.
However, a broad perspective and little thought will help create realistic projections. Here are some factors to consider:
If you’re not an expert in financial planning or don’t have the time to set up and manage a retirement plan, you may need the help of an expert financial planner. When you seek professional advice, your planner will assess your current financial situation to design a realistic and successful retirement plan. You must provide detailed information about your financial affairs.
Documents your financial planner may require will generally include copies of your most recent bank statements, including regular savings, checking, retirement plans, annuity products, credit cards, and other debt, as well as the following:
After considering the above considerations, you need to determine how much you need to save. First, consider the possible sources of income you will have when you retire. A comprehensive retirement income package is commonly referred to as a “three-legged chair,” which includes Social Security, employer-sponsored retirement plans (such as qualified retirement plans), and your personal savings. So, of course, the amount of your personal savings depends on your employer’s contributions to retirement accounts and your expected Social Security earnings.
Your next consideration is the type of savings vehicle you use for your personal savings; this will affect your required annual savings. The amount depends on whether your savings are in pre-tax, after-tax, tax-exempt, or tax-advantaged accounts, or a combination of both. The type of savings account you choose will depend, among other things, on whether you want to tax your savings before or after retirement.