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What to Do About Retirement Planning

Saving enough money for retirement takes time and discipline, but is doable with a strong plan in place.

Written by Jacqueline DeMarco / July 7, 2022

Quick Bites

  • How much you need to save for retirement depends on a variety of factors.
  • A good baseline is to save 20 to 25 times what your annual income requirements are.
  • There are multiple types of retirement plans that can make it easier to save for retirement.

It can take decades to save enough for retirement, which can make the whole process feel pretty daunting. Having a solid plan in place to save for retirement can help make saving feel less overwhelming and can make it easier to save up enough slowly over time.

Keep reading for insight into how to plan for retirement.

Inside this article

  1. How to plan for retirement
  2. I want $100,000 a year
  3. Best age to retire
  4. I don't have an employer plan
  5. Investing for retirement

How to plan for retirement

The good news is that you have a lot of options when it comes to planning for retirement and you can choose a path forward that suits your needs. That being said, there is a basic structure most of us should follow to set and reach our savings goals.

  • Determine how much you need to save. Take any Social Security or pension income into account and then determine how much you would need to live off of each year after you retire. Then calculate how much you need in total based on that amount so you know what to save for.

  • Calculate how much you need to save each year. Take the total amount you hope to save and divide it by how many working years you have left to determine how much you need to save annually. If you can afford to contribute more than that number to your retirement savings, that can give you a bit of a buffer in case you need to retire early.

  • Contribute to a retirement plan. Whether you have access to a 401(k) or 403(b) through your work or need to contribute to an IRA, putting your savings somewhere they can grow and where you can enjoy tax benefits is better than simply putting the money into a savings account.[1]

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How much money do you need to retire with $100,000 a year income?

Determining how much money you need to save in order to have a $100,000 a year retirement income depends on a lot of different factors, says Jeremy Keil, Certified Financial Planner and and retirement planner at Keil Financial Partners.

First, you need to take into account how much Social Security and pension income you’ll have during retirement. Then you need to factor in things like tax planning, marital status, life expectancy and health needs—much of which can be hard to predict.

“That said, if you ignore all that, the rule of thumb is that you should have about 20 to 25 times what your annual income requirements are,” Keil says. “So if you’re looking for $40,000 per year income then you’d need $800,000 to $1,000,000 saved.”

Best age to retire

While 65 is the standard age people plan to retire at, this isn’t a rule that is set in stone.

“You should retire when you want to and can afford to,” Keil says. “You should take your pension and Social Security when it gives you the best chance at maxing out your guaranteed lifetime income.”

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It can be hard (perhaps impossible) to predict your exact date of retirement, which is why it is a good idea to save more money for retirement than you think you need. While you may have the best of intentions to work towards 65 (or another age of your choosing), a health issue, a need to care for an elderly family member or other curveballs life throws your way may make you want to retire earlier than you originally planned.

If an employer does not offer a retirement plan, what might be another way to save for retirement?

Employer-sponsored 401(k) and 403(b) retirement plans can be a great way to save for retirement, especially if your employer matches some or all of your contributions. If you don’t qualify for a retirement plan through your employer, don’t worry, you have other options available to you.

  • Traditional and Roth IRAs. Both traditional IRAs and Roth IRAs offer the opportunity to invest your retirement savings and save on taxes.

  • SEP IRA. If you’re self-employed, you can open a Simplified Employee Pension plan (better known as an SEP IRA) and contributions can be tax deductible.

  • Health Savings Account. A health savings account (HSA) offers you the chance to take advantage of tax deductions, tax-free growth potential and tax-free withdrawals to cover qualified medical expenses now or in retirement (This is in reference to federal taxation only. You may be subject to state taxation). After you turn 65, if you don’t end up needing that money to cover health care costs, you can withdraw funds from the account penalty-free. While this isn’t exactly a retirement plan, saving for your future medical needs is a smart part of retirement planning.[2]

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What does Keil recommend?

“Make sure you max out your HSA accounts first and then your Roth IRAs, if you can,” Keil says. “The HSA account is the best tax deal in the U.S. because it’s tax-deductible as you contribute, it’s tax-deferred as it grows and if you meet the rules towards using it for qualified health expenses it’s tax-free when it comes out.”

Investing for retirement

401(k)s, IRAs and other retirement savings accounts involve not just saving your money but investing it. This can be stressful if you aren’t familiar with how investing works.

According to Keil, you should invest towards retirement knowing that you’re investing every month (or two weeks) and that ups and downs will happen along the way. He recommends making riskier investments (that have a potential higher return) when you are young and have a higher risk “capacity.” As you get older, you should shift into safer investments because you’re nearing retirement age.

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“As you approach retirement you need to realize that you are about to have both short-term and long-term savings needs,” Keil says. “It’s helpful to think, if not create, two different ‘buckets’ of money. One focused on the upcoming short-term time frame and the other on the longer-term time frame.”

Just because you reach retirement age doesn’t mean you stop working towards long-term savings goals. For example, if you do retire at the age of 65, you may still live for another 30 or more years and may want to have some of your investments growing during that time.

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“Don’t think that all your money needs to be short-term,” Keil says. “When you hit retirement you still have a significant long-term time frame and need some long-term growth money to match that.”

One easy way to embrace this technique is to invest in target date funds. Target date funds (TDFs) blend together a handful of different investments (such as stocks and bonds) and place your money into riskier investments when you’re younger and then shift them into safer investments as you get older without any work on your end.[3]

Article Sources
  1. “Top 10 Ways to Prepare for Retirement.” DOL. Sept. 2021. https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/top-10-ways-to-prepare-for-retirement.pdf
  2. “No 401(k)? How to save for retirement.” Fidelity. May 31, 2022. https://www.fidelity.com/viewpoints/retirement/no-401k
  3. “What are target date funds?” BlackRock. https://www.blackrock.com/us/individual/education/retirement/what-is-a-target-date-fund

About the Author

Jacqueline DeMarco

Jacqueline DeMarco

Jacqueline has worked with more than two dozen financial brands, including LendingTree, Capital One, Bankrate, Student Loan Hero, and Northwestern Mutual, providing thoughtful content to give readers insight into complex topics that they likely didn’t learn in school.

Full bio

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