Retirement Planning 101: Are You on Track?
Retirement is one of life’s most significant milestones, providing the opportunity to enjoy the freedom and rewards of years of hard work. But achieving a secure and comfortable retirement doesn’t happen by chance.
It takes careful planning, smart decision-making, and an understanding of the many factors that can impact your financial future. Planning for retirement can feel overwhelming, but breaking it down into manageable steps can make the process much easier.
This guide will take you through the basics of creating a retirement budget, explain key financial concepts, and highlight the benefits of professional guidance from an experienced financial advisor like we provide here at South Platte Investments and Planning.
Why Is Retirement Planning Important?
Without a plan, you could face financial uncertainty during a time when stability matters most. Expenses like health care, taxes, and general cost-of-living can quickly add up, making it essential to prepare in advance. Failing to account for these factors may leave retirees either struggling to stretch their savings or scaling back their dreams for the golden years.
The good news is that with the right tools, strategies, and qualified advice, you can take control of your financial future and make your retirement as enjoyable as it should be.
5 Steps to Building Your Path to a Secure Retirement
Planning for retirement can feel overwhelming, but breaking it into manageable steps makes the journey much clearer. By understanding your future needs and building a realistic retirement budget, you can set a clear savings target to sustain your desired lifestyle. Following these steps below provide the foundation for a confident and fulfilling retirement.
Step 1: Build a Retirement Budget
The foundation of any solid retirement plan is a budget. A well-thought-out retirement budget helps determine how much you’ll need to save to maintain your lifestyle and cover essential expenses. Follow these steps to build one:
1. Start with Your Current Budget
Begin by listing your current expenses. This includes housing, utilities, groceries, insurance, transportation, medical and discretionary spending.
You can provide the monthly or annual amounts for each of your budget categories, but you will ultimately want to arrive at an annual budget amount for each, and total.
2. Adjust for Retirement
Next, create an adjacent column for your expected retirement budget. Make your best educated estimate of what your retirement budget for each category will be.
Some costs will likely decrease or disappear entirely, while others may increase. Consider the following adjustments:
Expenses to Subtract or Eliminate
- Long-term savings contributions
- Paid-off mortgage or debt obligations
- Child-related costs, such as tuition or daycare
- Work-related expenses like commuting or business attire
- Paid-Up life insurance premiums
- Long-term debt obligations
- Haircuts if you believe you will be bald
- Reduced charity contributions
- Alimony and child support
- Etc.
Expenses to Add or Increase
- Health care, including potential long-term care needs
- Leisure activities or hobbies (golf memberships, for example)
- Taxes, which may vary depending on your income streams in retirement
- Travel (unless you have a separate goal during your retirement period for this)
- Etc.
3. Don’t Overlook Taxes
Taxes are often underestimated in retirement planning. Different types of income (e.g., Social Security, pensions, investments) are taxed in varying ways, and tax laws can change over time. Consulting a tax advisor or financial professional can provide clarity on this topic.
When you’re done, you should have a Retirement Living Expenses (RLE) budget that reflects what you’ll need to maintain your desired lifestyle in today’s dollars.
Step 2: Calculate Your Savings Goal
Once you know your projected RLE, the next step is figuring out how much you’ll need saved. This is where the 4% Rule comes into play.
The 4% Rule Explained
The 4% Rule is a guideline that suggests retirees can withdraw 4% of their savings annually without running out of funds over a 30-year period. For example:
- If your RLE is $150,000 annually, and you expect $30,000 in annual Social Security benefits, you’ll need $120,000 from savings.
- Divide $120,000 by 4% (0.04), and you’ll get $3 million. This is the savings target required to support your lifestyle in today’s dollars.
Keep in mind, the 4% Rule is just a guideline. Factors like rising health care costs, inflation, and market conditions may require adjustments to your withdrawal rate.
Step 3: Account for Inflation
Inflation can significantly erode your purchasing power over time, even at modest rates. For instance, with a 3% inflation rate, today’s $100,000 lifestyle will cost over $180,000 in 20 years. Ensuring your savings and investments grow at a pace that outpaces inflation is crucial.
Step 4: Use Retirement Calculators
If you have ever done an internet search for a free retirement planning calculator, I’m sure you have found plenty of results. Online retirement calculators can be a great starting point.
They use basic inputs like your current savings, expected growth rates, and inflation to project whether you’re on track to meet your goals.
While helpful, these tools are inherently limited as they rely on static assumptions, which may differ greatly from future realities. Life is full of statistical probabilities and uncertainties. Rarely do hard numbers come to us in the uncertain game of life. Understanding the probabilities of the hard numbers is an extremely important part of retirement planning.
Partnering with a financial planner allows access to more robust calculators and personalized strategies based on statistical models. A professional will help you plan for uncertainties, from market downturns to changes in health care costs.
Step 5: Seek Professional Financial Guidance
Planning for retirement involves much more than numbers on a page. It’s about preparing for unknowns and creating a strategy that supports your goals and protects your future. An experienced financial planner can provide:
- Tailored Advice
Each situation is unique. A financial planner can provide insights specific to your goals, income, and risk tolerance. - Market Strategies
From optimizing investments to managing sequence-of-return risk, professionals can help mitigate the impact of market volatility on your portfolio. - Tax Optimization
Strategies like Roth conversions, tax-efficient withdrawals, and charitable giving plans can make a significant difference in how long your savings last.
At South Platte Investments and Planning, Norris Davis and his team specialize in designing customized retirement plans that align with your individual needs. Whether you’re just starting to plan or refining your strategy, they can help you every step of the way. With a thorough understanding of today’s economic environment and a clear focus on preserving your hard-earned assets, South Platte Investments will give you confidence in your financial future.
Take the Next Step to Your Retirement
Retirement can be one of the most fulfilling phases of life, but only if you prepare for it. Don’t leave your future up to chance.
Contact South Platte Investments and Planning today and schedule a consultation with Norris Davis. Together, you can create a plan that gives you confidence and secures the lifestyle you’ve always envisioned.
Why Choose South Platte Investments and Planning?
Located in Littleton, CO, South Platte Investments works with professionals, particularly those with complex financial situations such as restricted stock or company equity. Their process combines expertise with a personalized approach to ensure you receive sound, actionable advice. They don’t just park your savings; they actively help you pursue your goals.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.