Planning for Retirement

By Kaitlyn Szabo • October 15, 2021

Before diving in, we want to be clear: we strongly encourage you to seek professional guidance on retirement. For example, Prepare + Prosper’s Financial Continuum of Care page includes a good resource for financial planning. While many personal finance websites like NerdWallet, CNBC, or AARP have fairly comprehensive, easy-to-follow guides, talking with a trustworthy professional about your unique situation is often the best approach to retirement planning.

Planning to Reach Your Retirement Goals

No one can predict the future, which makes planning for retirement particularly challenging. Although it is difficult, it is essential to prepare as best you can for your retirement. Here are some guiding questions to ask yourself as you build your retirement strategy.

When do you plan to retire?

For many Americans, ages 62 to 70 is the general range for retirement. However, several factors may influence when you retire, including reaching your “full” retirement age to maximize your Social Security benefits. Having a rough idea of your retirement age (plus your projected life expectancy after retirement) can help determine your “investment time horzion,” your risk tolerance, and your projected longevity.

What are your anticipated sources of income?

Instead of collecting regular or semi-regular paychecks from wages earned, income in retirement typically comes from personal savings or government benefits. Here are examples of primary incomes sources in retirement:

• Social Security. Use the Social Security Administration website to estimate your Social Security benefits. 
• Investments. Once you retire, you can make withdrawals from investment accounts if you have them.
• Annuities. An annuity is an “insurance product people can buy to guarantee a certain amount of income.”

What cost of living expenses can you reasonably expect?

A commonly referenced benchmark for determining post-retirement expenses is to use about 80% of your pre-retirement income. While that’s quite a bit of money, it likely will be very different from your current spending habits. Here are some expenses that might change before or following retirement:

• Housing. While a mortgage might be paid off (woo!), other costs may remain stable or increase.
• Childcare. Although your children will be adults, you may still support them or any grandkids in some way.
• Medical. To help with increased medical expenses, Medicare is available for people ages 65 and up.
• Leisure. Hopefully, you will have more free time to travel and dedicate to fun hobbies!
• Debts. Credit cards and loans don’t magically disappear. Work now to reduce or eliminate debt, if possible.

Are you on track to hit your goal?

Given your expected retirement age, anticipated income, and projected expenses, use a retirement calculator to estimate whether you’re on track to hit that goal. If your strategy could use some help, try a few of these methods:

• Maximize your working years. Frankly, the best option for most people is to work as long as possible. As you reach retirement age, some experts suggest a “phased retirement.” This method involves a more gradual transition from a full-time career to a part-time job or reduced workload, then full-time retirement.
• Prioritize investing for retirement. Saving for retirement is really investing for retirement: you need to put your money allocated for retirement into the market to have any chance of compounding growth. To help you get going, set up a monthly automatic transfer to your preferred account.
• Make lifestyle adjustments, if possible. If you’re not on track toward your goals, review your current budget to see if there are additional expenses you can cut back on to open up more funds for savings. For example, check out our previous blog post on how to save $500 in a year. 

Money Management E-Newsletter: September 2021