Planning Retirement – When and How to Start

Retirement planning is an absolute must. There isn’t one absolutely correct answer since individual situations vary, but this is a question on millions of individuals’ minds. What is correct, however, is that retirement should be planned for a smooth transition into this phase of our lives.

Here is a 5 step process which is the same for all income levels.

Step 1 is to compile a detailed worksheet of projected survival expenses. Costs for shelter, food, transportation, loan repayments, medical and of course income taxes are examples. Be as detailed as possible.

Step 2 will be a list of those expenses beyond survival. Entertainment, travel, or second home are the most common examples in this category.

With the total expected expenses in item 1 and 2, you will know how much retirement income will be needed.

Step 3 starts with compiling all of your assets. These could be:

a. Personal savings and investments

b. Qualified plans such as 401(k) and 403(b)

c. Individual retirement account

d. Roth IRA

e. Social Security and Medicare benefit

This group of assets is from where your income in retirement will be generated. Planning involves how much income is needed, when it is needed and how long it will last

Step 4 involves generating income for retirement and requires many decisions. The one overriding goal however is: To Not Outlive Your Income.

Typical decisions are:

a. Current income needs

b. Choice of investments

c. Order of distribution from various assets

d. Income tax on all of the above

e. Inflation in the future

f. Family health issues and history should beĀ as well as any legacy or special situation goals.

Step 5 may or may not be needed. This is where you match your estimated expenses (after step 2) with income potential from available resources (after step 4). Several options may need to be considered if income comes up short. You may need to: