What You Need to Know About Retirement Planning, Because Yes, You Need to Think About That Now

by Team Scary Mommy
Originally Published: 
retirement planning, Older couple at sunset
Anukrati Omar/Unsplash

When you’re deep into your usual slog, it can be hard to plan ahead for the weekend, let alone your retirement. And we hate to break it to you, but you’re probably not going to be able to retire at the same age your parents did: The average retirement age is steadily rising. Back in 1986, the average retirement age for men was around 62, and for women about 57. But by 2016 the average retirement age for men was approximately 65, and 63 for women. That’s a pretty significant jump — especially for women. And even though you may be decades away from this age, it’s not too early to start your financial planning for retirement.

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Not sure how to plan for retirement? Thinking of how much you should have saved by 40? It sounds daunting, but there are things you can do right now to make life easier for your future self. It’s also imperative to know that you are not alone in asking questions and not know where to start the process. In fact, according to the latest search data, there are over 60,500 monthly searches about retirement planning alone. Everyone starts somewhere. The most important thing is to educate yourself on all your options to find the best one for you. For example, use a retirement planning calculator to do the math. Read up on trust vs. a will. What about retirement annuities?

Confused? Here’s a basic retirement planning guide, including information on retirement plans for the self-employed.

Determine How Much Money You’ll Need For Retirement

Let’s get this out of the way first: for those people living paycheck-to-paycheck, stashing money away for retirement can be difficult, if not impossible. But if you are in a position where you can start saving now, definitely do it.

The first step in the process is trying to figure out approximately how much money you’ll need in order to survive in retirement. There are several ways to do this, and unfortunately, none of them are foolproof. Your expenses change over time in ways that you’re not able to predict now, but at least you can do a rough calculation to help you with the saving process.

“Assume that the amount you spend right now will be roughly equal to the amount you spend when you retire,” Paula Plant at The Balance writes. “Sure, you may be free from some current expenses like your mortgage during your retirement years, but you’ll probably also pick up new expenses like travel and additional health care costs.”

Once you have that rough estimate of how much you’ll need for one year of retirement, multiply it by 25. Yes, this figure is going to look ginormous. For example, if you want to live on $40,000 per year in retirement, you’re going to need a portfolio of $1 million.

Retirement Plans for the Self-Employed

Just because you don’t have a salaried full-time job with benefits doesn’t mean you shouldn’t (or can’t) have a retirement plan. For starters, you could open a traditional or Roth IRA, which is the most straightforward and easiest place to start for those who work for themselves and want to have a retirement plan. There’s also a solo-401K, as well as more complicated IRAs like the SEP IRA and SIMPLE IRA, as well as having your own detailed benefit plan (though that’s really only beneficial for very high earners). These are a lot of plans and terms, so for more information, read more here on retirement plans for the self-employed.

Retirement Planning For Late Starters

Don’t beat yourself up or think it’s too late for you if you were not in a position to start the retirement planning process earlier in life. Not everyone has the same privileges, and that’s what early retirement planning often feels like. But now that you’re here, what do you do? How do you play catch up?

Luckily, money experts at CNN have outlined what folks in their 50s can do today to help in their Golden Years down the line. First things first, start saving like the house is on fire. Per their calculation example, a couple who saves $500 a month now, can have $145,000 in 15 years. For those saving $1,000 a month that could mean $290,000 in 15 years.

Still, that might not be enough retirement income when you calculate it on a monthly basis, so the next option is to delay retirement and stay on the job longer. That gives you more time to save. Finally, you’re going to have to think outside the box. Perhaps downsizing your home or moving to an area with lower living costs, working part-time, and finding ways to set up supplemental income.

Factor in Social Security

Will Social Security still exist when you retire? Who knows! But since that safety net is still in operation, it’s a good idea to figure out approximately how much you’ll be getting. The easiest way to do this is with the Social Security Administration’s Retirement Estimator. Though the agency stresses that this is just an estimate and you won’t know your actual benefits until you apply for Social Security when the time comes, at least it’ll give you some idea of what you might get. And yes, self-employed people who pay into Social Security are eligible for the benefits.

Once you have an estimate from Social Security, you can add it to your list of retirement incomes, like a pension or rental properties. Take the total from that list and subtract it from the amount you figured out you’d need or want to retire. So hypothetically, if you’d like to have $60,000 a year during your retirement and the Social Security estimator says you’ll get around $20,000 per year from them, and you’ll have a small pension of $5,000, around $25,000 of your yearly retirement income will have to come from other sources, while $35,000 comes from your retirement portfolio. In that case you’d need a $875,000 portfolio to sustain you for 25 years.

Figure Out What You Need to Save

So now that you have a general idea of how much additional money you’ll need to reach your retirement goals, it’s time to calculate how much you’re going to need to save in order to get to that point. While they won’t give you a specific number down to the cent, retirement calculators will give you a ballpark figure that’ll give you a god idea of what you’ll need to live comfortably in old age. In the end, you’ll end up with a better understanding of how much you’ll need to save for retirement.

A quick search for “retirement calculators” will return an overwhelming number of results, and all those options start to look all the same to the untrained eye. Luckily, The Balance has gone ahead and created a novice-proof guide to retirement calculators, with a score that rates their accuracy, usability, and educational component. In addition to a variety of online retirement calculators from places like AARP and MarketWatch, which you can use to account for other factors, like taxes and inflation.

Some of these calculators include ESPlanner, New Retirement, as well as AARP. The best retirement companies you should check out are Fidelity, Vanguard, and Charles Schwab.

Save (And Maybe Invest?) That Money!

You probably need to save more for retirement than you thought you did, so now it’s time to buckle down and make a plan. It doesn’t necessarily have to be taking a chunk out of each of your paychecks (though that’s definitely a good idea, too). In fact, here are 54 different ways to save money on everything from food to transportation that you may want to start integrating into your current budget.

There’s also the question of whether, or how, to diversify your retirement portfolio. We’re talking about things like stocks, bonds, and higher-yield retirement accounts. The catch is that while these investments could earn more money for your retirement, they also come with an element of risk. Keep this in mind as you’re figuring out how best to save for retirement.

How to prepare for a meeting with your retirement financial planner?

The key to your first, or really any, meeting with your financial planner is asking the right questions, of yourself and them. Per CapitalGroup that means knowing exactly which documents to prepare and bring and having a list of questions ready to go.

First things first, the documents you should bring with you are:

  • Latest statements for all your accounts (e.g., IRAs, 401(k)s, 529s, savings)
  • Information about other investments or assets (e.g., stocks, real estate)
  • Compensation details (e.g., pay stubs, pensions, Social Security, inheritance)
  • Monthly expenses (e.g., credit cards, mortgage/rent, loans)
  • Recent tax records
  • Estate planning information (e.g., trust, will, life insurance)

The questions you should ask are:

  • What is my financial situation?
  • Do I need to reconsider my time horizon?
  • Have recent changes in my personal life affected my financial situation?
  • Am I on track with my retirement savings?
  • Is my portfolio properly diversified to meet my financial goals?

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