Retirement planning can be one of the most important steps you can take toward building confidence in your future. Retirement planning isn’t just about accumulating money; it’s also about having a plan to help build your savings, manage your investments to balance risk and growth, and create additional income sources to support your chosen lifestyle for years to come, which may help you feel more confident about your retirement.
Yet, some people might struggle to get started. Whether you’re decades away from retirement or approaching it soon, understanding the fundamentals and recommended approaches for developing a personalized retirement plan can help build the foundation for your future.
Understanding the Importance of Retirement Planning
A detailed retirement plan addresses questions such as how much you may need to retire, where your retirement income might come from, and how to adjust your strategy as life changes.
Skipping or delaying retirement planning can lead to uncertainty, financial stress, or even postponed retirement. Creating a plan, no matter your age, may help you optimize your savings and feel more in control.
Assessing Your Retirement Goals
Getting clear on your retirement goals is an essential first step to creating a personalized plan that may fit your life. Start by asking yourself these key questions:
When do you want to retire? Are you aiming for age 62, 67, or perhaps later?
Knowing your target retirement age helps determine how many years you have left to save and invest. It also affects important decisions, like when to start claiming Social Security benefits and when to begin withdrawing from your retirement accounts. Taking the time to identify your ideal retirement age may help create a more focused, realistic plan.
What does retirement mean to you?
Is it a full stop from work, a part-time consulting role, or the freedom to start something new? Your retirement isn’t one-size-fits-all, and your plan should reflect how you want to spend your time. Thinking through this may help shape your financial needs and give you a clearer idea of income requirements.
Where do you see yourself living?
Will you downsize, stay in your current home, or move to a different location? Housing costs can be one of the larger retirement expenses, so considering your living situation early may help you prepare for these costs and any lifestyle changes you want.
How do you imagine your lifestyle?
Will you travel, indulge in hobbies, volunteer, or spend more time with family and friends? Your hobbies and daily activities may contribute significantly to your expenses and overall happiness, so including these in your vision may help you plan a retirement that’s both fulfilling and financially sustainable.
Are there any legacies or causes you want to support?
Do you want to give back or pass something meaningful on? Planning for charitable giving or leaving an inheritance may influence how you structure your finances and estate plan to carry your values forward.
Taking the time to reflect on these questions may give you a clearer picture of what retirement looks like for you. It’s the foundation of a plan tailored to your unique dreams and priorities.
LightForce Financial Insight: Write down your vision and discuss it with your partner or family. When everyone shares similar retirement goals, it may create clarity and help make the planning process more effective. Having these conversations early may help align your vision/goals/plans so you can work toward a similar future.
👉 For more details on these strategies, get our free worksheet: Early Retirement Planning Toolkit
Evaluating Your Current Financial Picture
Before you dive into creating your retirement plan, it may help to take a good, honest look at where you stand financially today. Start by listing everything you’ve saved and invested so far. This includes your 401(k), IRA, brokerage accounts, pensions, and even cash in savings. At the same time, take stock of any debts or liabilities you might have, such as a mortgage, credit card balances, or other loans.
It may also be helpful to get an estimate of what you can expect from Social Security and any pension benefits you might have. The Social Security Administration’s online tools, or resources from your employer, may help you get these numbers.
👉 Explore how you and your spouse could optimize your SS benefits. Download our free worksheet and get started today.
And don’t forget your monthly budget: knowing how much you spend today may be key to figuring out what you’ll need later on. Taking these steps may give you a clearer financial snapshot and is intended to provide a solid starting point for planning your retirement journey.
LightForce Financial Insight: Gather financial documents and create a master spreadsheet detailing your assets, liabilities, and expected sources of retirement income.
Calculating Retirement Savings and Income Needs
One of the most important parts of your retirement plan is estimating how much money you may need to live comfortably once you stop working. It’s not just about covering the essentials; it’s about seeking to have enough to maintain the lifestyle you want to enjoy throughout retirement.
A foundational step in retirement planning is estimating how much you may need to fund your desired lifestyle:
- Estimate annual expenses in retirement; don’t forget healthcare, property taxes, inflation, hobbies, and travel
- Account for longer life expectancy, since today’s retirees may live longer than those of previous generations and may need to plan for 25–30+ years of income
- Factor in inflation: what seems like enough today may need to be more down the road to potentially keep pace with rising costs
These calculations may help set a target for your savings, helping you plan with more clarity.
LightForce Financial Insight: We suggest considering a call with us to create a personalized retirement projection tailored to your specific goals and circumstances.
Building a Diversified Income Plan
When it comes to funding your retirement, it may be wise not to put all your eggs in one basket. Instead, think of your retirement income like a pie made up of several slices. Social Security may provide a foundation, but some may be surprised that they need more than that to live comfortably.
That’s where your other income sources may come in: pensions you may have earned, the savings you’ve been building in your IRA or 401(k), and any additional investments you’ve made over the years.
Don’t forget about the possibility of part-time work in retirement; it’s becoming more common and may be both financially and personally rewarding.
LightForce Financial Insight: Use an online retirement calculator to model various scenarios and see how changes in retirement age, savings rate, or investment returns may affect your plan.
Building and Optimizing Your Retirement Savings Strategy
Starting earlier may potentially provide more time for compound growth. For those starting later, it’s never too late: increased contributions and strategic investing may make a substantial difference.
Optimizing Retirement Savings Accounts
Seeking to optimize your retirement savings starts with making the most of the accounts available to you. If you have access to a 401(k), be sure to consider every dollar of employer matching; that’s an additional employer contribution you don’t want to leave on the table. And whenever you get a raise, consider increasing your contributions; those increases may potentially grow over time.
Don’t overlook IRAs and Roth IRAs. Knowing your annual contribution limits and the tax benefits of each may help you pick the right fit. For instance, Roth IRAs may allow you to enjoy tax-free withdrawals during retirement, which could be an advantage down the line.
If your health insurance includes a high-deductible plan, an HSA (Health Savings Account) may be worth considering. You can contribute funds for medical expenses in a tax-advantaged way; think of it as another tool in your retirement toolkit.
Finally, try to automate your savings so you’re consistently contributing without having to think about it. Once a year, or whenever life changes, take a look at where your money’s going. As you get closer to retirement, it may be beneficial to rebalance your investments, potentially shifting toward more stable options to help preserve what you’ve built.
LightForce Financial Insight: Catch-up contributions are available if you’re aged 50 or older; consider these benefits for additional retirement savings potential.
Investment Choices and Risk Management
Think of your investment portfolio like a garden that needs different care at different stages of growth. When you’re younger, you may be able to afford to take more risks, so it may make sense to have a larger share of stocks, which have historically had more potential for growth over time.
As you get closer to retirement, it may be wise to start shifting toward more stable investments, like bonds and lower-risk equities. This adjustment may help preserve what you’ve built, potentially providing a steadier approach as you near the time when you’ll rely on your savings for income.
Diversification Considerations
You’ve probably heard the saying, “Don’t put all your eggs in one basket,” and when it comes to investing for retirement, it may be particularly relevant. Diversification means spreading your money across different types of investments: stocks, bonds, real estate, and even other asset classes. This mix may help manage risk because if one area of your portfolio experiences volatility, the others may help balance things out.
By diversifying, you’re not relying on a single investment to perform well. Instead, you may build a potentially smoother path toward your retirement goals. Remember, it’s about managing risk as much as it is about seeking returns, especially as you get closer to needing that money.
LightForce Financial Insight: Evaluate your risk tolerance with online quizzes or reach out to us at the link below for a consultation call.
Planning for Healthcare and Long-Term Care
Healthcare costs may be one of the larger expenses you face in retirement, so it may pay to plan ahead. Start by getting to know Medicare: what it covers, when to enroll, and what it doesn’t.
Some retirees also choose to purchase supplemental insurance to help cover gaps in Medicare, potentially helping avoid surprise out-of-pocket costs.
It’s important to budget for things Medicare doesn’t fully cover, like prescriptions, dental care, and vision. These expenses may add up faster than you might expect.
Long-term care is another key consideration. Whether it’s assisted living, in-home care, or nursing facilities, these costs may be significant and are often not covered by regular health insurance or Medicare. Exploring long-term care insurance or setting aside savings specifically for these possibilities may ease your mind.
LightForce Financial Insight: If you have a high-deductible health plan, consider taking advantage of a Health Savings Account (HSA). These accounts offer tax advantages and may be a way to save specifically for medical expenses in retirement.
👉For a more detailed approach to healthcare planning in retirement, including HSA strategies and long-term care considerations, check out our Early Retirement Planning Toolkit.
Preserving and Adjusting Your Retirement Plan
Retirement planning isn’t something you set and forget. Your financial situation, goals, and even the rules around taxes and estates may change over time, so it’s important to keep your plan current. Seeking to preserve what you’ve built and knowing when to make adjustments may help you stay on track and avoid surprises down the road.
Estate and Tax Planning
It may be important to keep your estate and tax plans up to date as part of your retirement preparation. This means regularly reviewing and updating your wills, beneficiary designations, and powers of attorney to help ensure they reflect your current wishes and life situation.
Taxes can be complex when it comes to withdrawing money from different retirement accounts, so it may be helpful to learn how these rules work. For example, withdrawals from traditional 401(k)s and IRAs are generally taxed as ordinary income, and timing your withdrawals thoughtfully may help you manage your tax situation.
You might also want to consider gifting strategies or legacy planning: deciding how you want to pass assets along to your loved ones or causes you care about. This kind of planning may help ensure your money goes where you intend and could ease any concerns you may have about your wishes being honored.
LightForce Financial Insight: Consider scheduling an annual or biannual review of your retirement plan to confirm everything still aligns with your life as it changes.
Working with LightForce Financial
At LightForce Financial, we seek to make a meaningful difference in your retirement journey. We strive to bring a personalized approach by crafting strategies tailored specifically to your goals and situation, and we aim to help you navigate the often-complicated world of taxes and changing markets.
Perhaps most importantly, we seek to hold you accountable, working to help ensure you follow through on your retirement planning strategies and action steps. Having us as a professional resource may help provide confidence and peace of mind as you move forward.
Retirement planning is more than a single decision; it’s an ongoing journey that seeks to adapt to your dreams and your reality. A well-designed retirement plan strives to balance structure with flexibility, potentially allowing you to navigate life’s changes with confidence.
By focusing on your goals, actively building your retirement savings, and making informed investment and healthcare decisions, you may build a personalized retirement plan designed to potentially provide comfort, stability, and fulfillment.
Ready to take the next step? Consider scheduling a meeting with us. We are here to help you navigate the complexities of retirement planning.
Important Disclosures:
Advisors Resource Council (“ARC”), dba LightForce Financial, is a registered investment advisor. This content is provided for educational purposes only and should not be construed as specific investment advice or recommendations for any individual. All investments carry risk, including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. Past performance does not indicate future results. Consult a licensed tax professional or estate planning attorney regarding your personal situation before employing any specific strategies. All information is believed to be from reliable sources; however, ARC makes no representation as to its completeness or accuracy. Additional information, including management fees and expenses, is provided on ARC’s Form ADV Part 2, which is available upon request.