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Retirement Planning Basics

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Retirement Planning BasicsWe all have the responsibility to provide for ourselves and our families.  Proper retirement planning allows us to do this even after we stop working.

Reaching your retirement goals will require a lot of retirement planning and savings.  Now, more than ever, people must focus on establishing a nest egg that will last them through retirement for the following reasons:

  • Life expectancies and periods of retirement have risen over the years.  Outliving retirement assets is a serious concern for many retirees.
  • Social Security and Medicare are in a state of flux
  • Employer provided defined benefit plans (pensions) and health insurance during retirement are becoming more and more rare
  • Healthcare costs have skyrocketed

Below are 20 ways to help you achieve your retirement planning goals.

How to reach your retirement planning goals

1.  Save as much as you can for retirement

Proper retirement planning will require you to save a decent chunk of change over the years.  Use an online retirement calculator and see how much you should be saving to have a high likelihood of achieving your retirement goals.  Use conservative assumptions and add some cushion to your calculations.

If you can’t save that much every month, save as much as you can.  Try and save at least 10 – 20% of your income.  Create a budget to see how much you can afford to put away each month.  Try and find ways to cut your expenses or increase your income if necessary.

2.  Use tax advantaged retirement vehicles

Here is a very brief explanation of the most common tax advantaged retirement savings vehicles:

Traditional IRA

  • Contributions are generally made pre-tax
  • Earnings and appreciation grow tax deferred
  • Most or all withdrawals will likely be taxable as ordinary income

Roth IRA

  • Contributions are made after tax (meaning you don’t receive a tax deduction for contributions)
  • Assuming certain requirements are met, future withdrawals will likely be completely exempt from income tax


  • Generally managed by your employer
  • Taxed similar to a Traditional IRA (contributions made pre-tax, withdrawals taxable)

Many different financial institutions offer IRAs.  I generally prefer IRAs at discount brokerage firms since there are little to no fees.  Some of the most popular ones out there include:

3.  Obtain proper food and water storage

Proper retirement planning requires one to prepare for the worst.  Having a food and water storage can help tide you over in the event of unemployment, a downturn in the economy, or other difficult time.

4.  Have a plan for long term care

Long term care can quickly wipe out the best retirement planning efforts if not appropriately planned for.  For many people, the obvious solution to hedge against financially devastating long term care is to purchase long term care insurance.

5.  Invest properly

Learning how to invest is crucial to achieving your retirement planning goals.  Create an appropriate investment plan and stick with it.  Avoid paying high fees, investing too conservatively, incurring too much risk, or other common mistakes.

6.  Create an emergency fund

Make sure you have a liquid emergency fund that you can access in the event of an emergency.

7.  Live a more modest lifestyle

Take simpler vacations.  Find an inexpensive hobby.  Continue to find ways to save moneyFor example, if you plan on travelling a lot, consider using credit card travel rewards to fund a good portion of your travel expenses.  Sometimes, people fall short in their retirement planning goals.  Living a more modest lifestyle can be a great remedy.

8.  Plan for Education & Support

Family and education are important.  However, I see far too many people who exhaust their retirement savings supporting adult children and/or paying for their education.

Teach your children about money at an early age.  Have a plan for how you will save for their education

Your adult children’s education and support should not take priority over your own retirement savings.  Your children have options to fund their education, and if they plan carefully and take responsibility, they may even be able to do it debt free.  However, nobody will loan you money for retirement.

9.  Maintain appropriate insurance coverage

Insurance is generally used to insure against events that while rare, could devastate you financially.  Many of these events don’t go away just because you enter retirement.  You might consider maintaining the following:

10.  Maximize Social Security benefits

Social Security planning is a very important part of retirement planning.  Make sure that you understand how Social Security works, what benefits you may be entitled to in the future, what you need to do to receive those benefits, and how to maximize your Social Security benefits.

11.  Diversify your Retirement Income

Don’t put all of your retirement eggs in one basket.  When I retire, I hope to receive income from a number of different sources such as:

  • Social Security
  • 401k and IRA distributions
  • Rental property income
  • Other investments
  • Part time work
  • Annuity and/or longevity insurance payouts

By diversifying your investments and sources of retirement income, you are able to hedge against some or all of the risks in retirement, which may include:

  • Inflation:  The risk of losing purchasing power over time
  • Market volatility:  The ups and downs of the market
  • Longevity:  The risk of living a long time and outliving assets
  • The risk of suffering severe market losses early in retirement

Each type of investment has its pros and cons.  By themselves, none of your investments will likely eliminate all of the risks you will face during retirement.  However, by using various types of investments, you can effectively hedge against your risks.

12.  Maintain Appropriate Healthcare Coverage

Healthcare costs can quickly consume one’s retirement savings if proper health insurance is not maintained.

Make sure you understand when you will be eligible for Medicare and what it does and does not cover.  Many advisers also suggest purchasing Medicare policies to cover any expenses that standard Medicare won’t.

13.  Start saving early

The younger you are when you start saving, the more time your savings will have to grow and the less you will have to save each month to reach your retirement goals.  If you haven’t started saving yet for retirement, start now.

14.  Get out of debt

If at all possible, get out of debt before you enter retirement.  This will free up a lot of money that would otherwise be spent paying interest to a credit card company or your mortgage lender.

15.  Keep your beneficiaries updated

Many people hope to leave inheritances to their posterity or others.  Make sure you do some proper estate planning to help you achieve your goals.

Keep in mind that retirement assets are generally passed by beneficiary designation.  If you don’t keep your beneficiary designations updated, your retirement assets may not pass to the people you want them to pass to, even if you have the best will in the world.  Designating both primary as well as contingent beneficiaries is generally a good idea.

Retirement assets that pass via beneficiary designation generally bypass probate and avoid all of the expense, delay, and publicity that probate normally entails.

16.  Take advantage of free money

If your employer offers a 401k match, contribute at least enough to your 401k to receive your full employer match.  This is free money.

17.  Choose an appropriate withdrawal rate

For retirees funding their retirement through systematic withdrawals of their retirement portfolio, many advisors suggest limiting withdrawals to 4% of the value of your portfolio.  Taking excessive withdrawals could mean that you outlive your retirement assets.

18.  Watch out for scams

There are a number of people out there who would love nothing more than to get access to your retirement savings.  Watch out for the warning signs of fraud

19.  Marry someone wealthy, win the lottery, or find buried treasure

Although technically this could help, I wouldn’t bank on it.

20.  Seek assistance with your retirement planning

Retirement planning involves many pitfalls for the unwary.  The tax rules in particular are quite complex.  Seek advice from a qualified financial planner or financial advisor if appropriate.

Additional Retirement Planning Information

For additional information on retirement planning, you might try the following books:

What are your thoughts and tips on retirement planning?  Leave a comment below!

Image: Aero17/Bigstock


{ 1 comment… add one }

  • Anna November 18, 2012, 3:07 pm

    Very good summary. I’m doing most of these things but I have a few to work on.


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