Retirement: A Puzzle to Navigate

When you are young, life tends to be a carefree experience. You aren’t worried about bills or how you’re going to eat because your parents will figure that out for you. Adulthood is different. As an adult, you’re faced with more pressing realities of life; budgets, bank statements, bills, work, and, ultimately, retirement. You’re looking forward to when you can have the freedom to decide when to finally say “I’m retired.” There is a lot of planning that goes into retirement, but it doesn’t take long to move forward. Here are some strategies to help guide you in the retirement planning process.

At What Age Will I Retire?

The earlier you retire, the more money you will want to have saved. Do you want to retire at 62 when you can withdraw from Social Security, or wait until age 70 for maximum benefits? Your own health is a critical factor: family history of serious health conditions like Alzheimer’s, cancer, dementia, diabetes, or heart disease may indicate health risks that could lead to early retirement. Many Americans retire before the full Social Security retirement age of 67 so factoring this into your plan is key.  

What About Family? 

We typically think of ourselves when we focus on our retirement plan, not recognizing the very real possibility that we will have to take care of someone we love. If you’re married, how much does your spouse expect to save? How is their health? Will you need to provide care for them?  If you have children, will you pay their expenses (like education) during retirement? Will you financially support your grandchildren, aging parents, or siblings? These are all important questions to ask yourself as you plan for your golden years. 

Will I Continue to Work?

You may have retired from your main career but might want to keep working. Will you go back full-time, part-time, or work on a contract basis or as a consultant? The longer you work, the more you can save and the less you’ll need to withdraw from your retirement accounts. Working longer also allows you to delay claiming Social Security benefits, which increases your monthly payments. There are health benefits to working longer as well. Studies have linked it to reduced chronic diseases, increased mental acuity, and better physical health. According to a 2016 study published in the Journal of Epidemiology and Community Health, delaying retirement by one year was associated with a 9% to 11% reduction in all-cause mortality over an 18-year span, regardless of baseline health status. Therefore, you may consider working later than originally planned, as it can provide both financial flexibility and potential health advantages. 

How Much Should I Have Saved?

The lifestyle you have now will eventually change. Although inflation will always rise, more of the things you have will likely be paid off, perhaps a home or vehicle. You may decide to travel more, spend time with family, or realize that you need care – all of which may increase or decrease your spending. To help you through this process, consider answering the following: What is my ideal retirement? 

Start Early

Someone who begins investing in their retirement in their 20s, as opposed to someone who waits until their 30s, uses fewer funds due to compounding interest. For example, to have $1M saved by age 65, assuming an account earning 7% per year (after expenses and fees), a 25-year-old will need to save $381/month, whereas a 35-year-old will need to save $820/month to accumulate the same amount of money. 

How Will I Structure My Retirement Plan?

There are many financial products that you can use for saving and investing, such as annuities, whole life insurance, and tax-advantaged investment accounts including 401Ks, ROTH IRAs, and Traditional IRAs. These can aid in your retirement plan and provide protection against inflation. Annuities provide consistent payments for 10 or 20 years or until death. When it comes to your investment accounts, it is suggested to withdraw about 4% per year to continue to allow the account to grow. Whole life insurance can provide cash value, which can be used as a loan to pay for any expenses you may have. In addition to your personal retirement accounts and Social Security, don’t forget to factor in any inheritance or pensions you may receive.  

Navigating your retirement plan may be complicated, but the good news is there are plenty of resources out there. Check out your local library or speak with a financial counselor to learn more about how to properly plan for your retirement. The earlier you start planning for retirement the more secure you will be.  

Samuel Molina is an Accredited Financial Counselor® and CEO and Founder of The Academy of Financial Education, a non-profit organization dedicated to narrowing the wealth gap for its community through activities, coaching, education, and instruction. Visit Samuel’s FindAnAFC profile to view his services and connect with him on LinkedIn.