Retirement Planning: What You Need to Know

No matter what your retirement goal is, having a plan to get there is critical. With rising health care costs, longer life expectancies, the uncertainty of Social Security and fewer corporate plans offering a guaranteed retirement income, it is important for you to have a plan to take control of your financial future. Keep reading to learn more.

Consider the example below, which shows the benefits of compounding interest for someone who begins saving $100 a month at 25-years of age compared to someone who does so starting at 35:

• Determine your Retirement Goals: Work with a financial institution or professional of your choosing to help identify your retirement goals, develop a plan and manage your retirement investments.

• Take Inventory of Your Income Needs: In order to maintain your standard of living, make a list of your basic needs (housing, living expenses, medical and insurance costs). These are the expenses you must cover in retirement. Then make a list of your discretionary needs (travel, activities, hobbies and so on). These are the expenses that will allow you to enjoy your retirement.

• Assess Your Income Sources: Include current and former work-related retirement accounts (defined benefit pension benefits, 401(k)s, IRAs, etc.), personal savings and investments accounts, individual retirement accounts, Social Security and home equity/rental income.

• Start Early: An early start will help you meet your retirement goals by giving your money more time to grow. Ideally, you should begin saving once you start earning a paycheck.

• Save as Much as Possible: The more you put away, the more you will have.

• Diversify: Invest in a diversified asset mix to mitigate risk and maximize returns. While investing involves the risk of a loss, and the value of your investments may fluctuate over time, your financial institution or professional can help explain your options and best investment strategies at each stage of your life.

• Reassess at Least Annually: Monitor and revisit your retirement plan annually to help adjust to life and market events.

There is no such thing as a one-size-fits-all solution for retirement saving — every person’s life has different variables. Each individual needs to properly assess and determine the needs they have for their future. Financial institutions and professionals can work with you to outline all of the options available. You can take control by working in partnership with your financial institution or professional to:

•  Identify how much you need to save
•  Understand what expenses you need to anticipate
•  Address potential obstacles that may arise and prepare for the unexpected
•  Identify key risks and take steps to mitigate them
• Build a solid financial foundation

You should consult with your financial institution or professional for more information specific to your financial situation.

• 401(k): An employer-sponsored retirement savings plan where your employer may make a contribution on a percentage of your earnings and where you can make pre-tax contributions. You may begin withdrawing without penalty at age 59½ if the plan permits in-service withdrawals, and you will be required to take minimum distributions at age 70½, if you are not working.

• Roth 401(k): Taxes are paid upfront and contributions are not tax-deductible; withdrawals are tax-free.

• Traditional IRA: Your savings will grow tax-deferred until withdrawn, and contributions may be tax deductible. You may begin withdrawing without penalty at age 59½ and will be required to take minimum distributions at age 70½.

• Roth IRA: Taxes are paid upfront and contributions are not tax-deductible; withdrawals are tax-free. You are not required to take minimum distributions at 70½.

• Defined Benefit Plan: A type of pension in which an employer agrees to pay a specified monthly benefit upon retirement. The amount is pre-determined by a formula accounting for factors such as average final salary, age of retirement and years of service.

• Cash Balance Plan: A type of defined benefit plan that credits your account with a percentage of your salary (generally 5 percent) each month, plus a set interest rate.