Retirement Planning

Retirement. It's something we all dream about—a time to travel the world, spend more time with family and friends, and do what you love. However, making the most of your retirement means planning for it now. And this is what retirement planning entails.

What is Retirement Planning

Retirement planning is the process of figuring out how much money you will need to live comfortably in retirement and then saving and investing accordingly. It includes estimating your future expenses and income, as well as thinking about how various life changes—such as retirement, inflation, healthcare costs, and longevity—will impact your plans.

Types of Retirement Plans

Retirement plans can be set up in a variety of ways. Examples include IRAs, employer-sponsored plans, and annuities. The diversification of these is a common strategy to spread risk out which will reduce that risk and increase the potential return on investment.

IRAs

The two types of IRA accounts are: traditional and Roth. Traditional IRAs allow you to make contributions with pre-tax dollars and defer taxes until withdrawal. However, there are limits to your ability to withdraw funds before age 59 1/2 without penalty. Withdrawals before that age may be subject to a 10 percent penalty, in addition to regular income tax liability. Also, the amount of taxes to be paid upon withdrawal is based on the tax bracket you're in at retirement, which could be higher than your current tax bracket. Your financial planner can help you navigate this transaction, with less confusion. Your financial planner will also be able to offer information about the best timing for or magnitude of withdrawals.

Roth IRAs differ from traditional IRAs in that they are funded with post-tax dollars. Withdrawals from a Roth account are not taxed, provided that certain requirements are met including the minimum holding period (it has been at least five years since the first contribution was made).

Employer-Sponsored Plans

These include traditional 401(k)s, 403(b)s, 457(b)s, and SIMPLE and SEP IRAs. They're "qualified" plans with certain rules for administration, participation, and funding. They may also have favorable tax treatment for employees who participate (such as pre-tax contributions and/or employer matching funds for 401(k)s).

For these plans, the employer is responsible for making sure that the plan properly operates within IRS guidelines; however, it is the employee's responsibility to ensure that they are taking full advantage of their employer's benefits package to maximize their retirement savings.

Annuities

These insurance policies provide payments based on an accumulation fund over time. You pay into the policy, and you get a guaranteed payout after a certain number of years or when you reach a certain age. Fixed annuities are generally secure since their value is guaranteed by the insurance company's general account and/or by state-specific guarantee funds that protect consumers from insurance companies going bankrupt.

Variable annuities on the other hand allow for more flexibility in terms of your investment options, but they also come with more risk than fixed annuities do.

The above retirement saving plans are just some of the options available to individuals when planning for retirement. There are many factors to consider when choosing a retirement saving plan, such as taxes, investment options, and fees. It is important to consult with a financial advisor to find the retirement saving plan that best suits your needs.

Why You Need a Retirement Advisor

A retirement advisor is more than just a financial planner, they are also a life planner. And the key to ensuring you have a happy and financially secure retirement is planning for it.

Anyone who has tried to plan their retirement without the aid of a professional knows that it's not as easy as it seems. It's almost impossible to know what to expect in the years to come, which means your retirement plan cannot be static. It needs to be highly flexible so that it can adjust to whatever happens in your life and the world around you.

Frequently Asked Questions

Retirement planning is simply the process of determining how much money you will need to fund your desired lifestyle after you stop working. It involves creating a roadmap that can help ensure you'll have enough money to live comfortably during retirement and provide guidance on how to get there by making progress toward your savings goals.

Here is what it entails:

Calculating your expenses in retirement i.e. lifestyle, healthcare, dependents
Understanding your sources of income
Optimizing the way you save for retirement
Investing wisely with your retirement savings i.e. an IRA or 401(k)

Every adult, regardless of age or income, should be planning for retirement. You may not be ready to retire tomorrow but planning today can help make sure you don't outlive your savings in retirement.

The earlier you start saving, the more time you have to enjoy your savings, provided that you start early and invest wisely. The age at which you can retire depends on your job profile and the amount of money required by you to live comfortably post-retirement. Financial advisors recommend that by the age of 30, one should ideally have started saving for retirement. This will help a person accumulate enough money by the time he or she turns 60 years old.

In a perfect world, you'd begin saving when you're young so that your money has plenty of time to grow. Compounding works best when you start early and make regular contributions. But if you're in your 50s or 60s, it's not too late. There are special savings programs designed specifically for older people. If you are still working at that age and haven't saved anything yet, it's possible to take advantage of catch-up contributions, which allow you to save more than younger people can.

Work With Us

At Allison Wealth Management, we understand that retirement planning is one of the most important financial decisions you will make in your lifetime. We are here to help you navigate the retirement planning process and make the best decisions for your future. Contact us today to get started!