Retirement Planning at its Simplest: What to Know

Man saving coins in a jar with the word 'Retirement' in Scrabble pieces in front of the jar.

Retirement Planning at its Simplest: What to Know

Retirement Planning

To ensure your financial security after you stop working, you need to create a retirement plan. There are five stages to retirement planning: determining when to begin, determining how much money is needed, establishing priorities, selecting accounts, and selecting investments. When it comes to preparing for retirement, it’s usually best to leave it up to a financial planner or someone experienced in managing money.

You may begin whenever suits you but including it in your long-term budget will provide the greatest results. The best approach to guarantee a happy and carefree retirement is to do just that. The enjoyable aspect is why it’s important to focus on the serious and maybe dull portion: planning how you’ll get there.

The standard advice is to invest more aggressively while you’re younger and then shift to a more conservative portfolio as retirement nears. Your retirement funds are something you can either handle yourself or outsource to a financial advisor.

How Much Do You Need To Save For Retirement?

To begin, picture what your days will look like after you’ve reached retirement age. Make a plan for your retirement by sitting down with a pen and paper.

Then, calculate how much money you’ll need. While the future of prices is unknown and inflation has been below the Federal Reserve’s target of 2% in recent years, the average inflation rate in the United States for the last century (1913-2013) was 3.22%. Expect future prices to rise in the next decades. Keep in mind that regular bills like rent, groceries, and medical care must also be paid. Keep in mind that when you retire, you won’t have to worry about paying for things like a mortgage or child care. This might lead to a reduction in your total spending.

You should then total all potential retirement benefits you may get. Include money from sources like a pension, social security, and property rental payments in your calculations. Putting together your income and expenditures can give you a decent indication of how much you’ll need to save each year of your retirement.

How To Start Saving For Retirement

Although it’s ideal to begin saving for retirement as early as possible (even $25 a month in your 20s can assist), it’s also acceptable to prioritize meeting more pressing financial obligations before turning your attention to retirement. You shouldn’t put off saving for retirement for too long, however, because of the importance of allowing the money to grow in a retirement account. The longer you put it off, the more money you’ll need to save each year, which will make the task much more difficult.

Create a Budget

Your current budget reflects your existing income and expenditures. While it’s important to have a general concept of how much money you’ll need to put away each month to reach your retirement objectives, you need to also make sure you really have that money available. If you want to save money every month for retirement, it’s a good idea to treat it like any other essential expense, like food or rent.

Set Automatic Transfers

For those who need a little more help remembering to put money down for retirement, here is a handy tool you may set up with your checking account and your retirement savings account: Make it so that money you’re saving for the future automatically transfers from your checking account to your investments on a certain day of the month, maybe the day you get paid. As a result, you won’t have to worry about losing any cash by proceeding in this manner.

Create an Emergency Account

Having an emergency fund, with three to six months of income saved up, can help you weather financial storms without depleting your retirement savings.

Pay Down Debt

The age of 65 should be set as a target for financial independence. This covers large loans such as those for a vehicle or house, as well as those taken out for education. The rationale is obvious: you don’t want financial obligations to follow you into your retirement.

Man saving coins in a jar with the word 'Retirement' in Scrabble pieces in front of the jar.

Where Are You In Your Retirement Journey?

Young adults may not have a lot of spare cash to invest, but they do have time to allow assets to grow, which is an essential and useful component of retirement savings. This occurs due to the effect of compounding over time.

Mortgages, college debts, insurance premiums, and credit card debt are just some of the financial stresses that early and middle age brings. Nonetheless, it is crucial to keep saving for retirement. These are some of the finest years to save heavily since you will be earning more money and will have more time to invest and earn interest.

People who are just getting started on saving for retirement should take full advantage of their companies’ 401(k) matching schemes. They should also put as much money as they can into a Roth IRA or 401(k) (you can have both at the same time). If you don’t qualify for a Roth IRA, a traditional IRA may be a good alternative. As with your 401(k), this is funded with pretax dollars, and the assets within it grow tax deferred.

You should become more conservative with your investments after age 50. While time is running out for those at this point of retirement planning to save, there are a few benefits. There may be more money available for investment now that you have a higher salary and/or have paid off some of your debts (mortgages, school loans, credit card debt, etc.).

Here Are Some Considerations To Add To Your Calculations:

  • Rent or mortgage payment, utilities (electricity, gas, water), and repairs
  • Medical expenditures (Fidelity predicts that a typical couple would require $295,000 in current dollars to cover medical bills in retirement, excluding long-term care.)
  • Day-to-day living expenses, such as food, clothes, and transportation
  • Activities for Relaxation and Pleasure, Such as Eating Out, Watching Movies, and Attending Plays
  • Expenses related to traveling, such as plane tickets, hotel rooms, and petrol if you’re driving.
  • Life insurance coverage


At this juncture, you should have noticed that managing your own retirement planning is difficult, with all of the complications of different types of investment, the tax implications of each etc., you should hire a certified financial advisor. The certified financial advisor will help you understand the moving parts of your retirement planning as simply as possible. A financial or wealth advisor will also help you in an integrated manner, looking into other aspects where your retirement funding may have an effect, such as your estate.

What’s The Magic Number To Hit For A Golden Retirement?

Financial experts have long recommended setting aside $1 million for retirement; with the rising cost of living and aging population, this number has now risen to $2 million. Some experts recommend setting aside at least ten to twelve times your yearly pay before retirement. While such calculations and formulae may be helpful, it’s important to keep in mind that each individual’s circumstances are unique.

Senior man stretching in front of laptop

What Investments Accounts Should You Use?

Employer-Sponsored Plans

Employer-sponsored 401(k) or 403(b) plans are good for young people. The former is a sort of retirement plan provided by large businesses. 

Your employer may match your contributions up to a specific level in qualifying retirement plans. 3% of your yearly salary may be matched by your employer and deposited into your retirement account, providing you a 3% bonus that accumulates over time.

401(k)s provide a better return than savings accounts (although the investments are not free of risk). Also, account funds aren’t taxed until they’re withdrawn.

Traditional Individual Retirement Account (IRA)

Traditional IRAs allow pre-tax savings. This means that the money you save is deducted from your income before your taxes are taken out. It reduces your taxable income and tax liabilities. Investing in a traditional IRA might help you avoid a higher tax bracket.

This account’s tax benefit is immediate. When you accept payouts, you incur your usual tax rate. Keep in mind, though, that the money grows on a tax-deferred basis. Your account balance isn’t taxed for capital gains or dividends until you withdraw money.

Roth Individual Retirement Account (IRA)

A Roth IRA, which is financed with after-tax dollars, may be a fantastic tool for young adults. This removes the tax benefit at the moment it is earned, but it protects against a larger income tax hit when the money is taken in retirement. Even if you don’t have much money to put into a Roth IRA at the outset, doing so may pay you in the long term. In a retirement account, interest accrues tax-free over time.

There are penalties for withdrawing funds from a Roth IRA before retirement age, just as there are with a 401(k). However, there are a few important exceptions that might prove to be invaluable to younger people or in the event of an unexpected crisis: First and foremost, you may always remove the original amount you deposited without penalty. Second, you may take money out for things like a first-time house purchase, medical bills, or disability-related fees.

SIMPLE Individual Retirement Account (IRA)

The SIMPLE IRA is a retirement plan given to workers of small companies in place of the more costly 401(k). It functions similarly to a 401(k), enabling workers to save money via payroll deductions with the potential of an employer match. This sum is limited to 3% of an employee’s yearly compensation. In 2023, the annual contribution maximum for a SIMPLE IRA will be $15,500, up from $14,000 in 2022. Employees 50 and older may increase their contribution maximum to $19,000 with a $3,500 catch-up contribution.

Other Aspects of Retirement Planning

  • Your Home
  • Estate Planning
  • Tax Efficiency
  • Insurance


If many of the above types of retirement advice sounds like Greek to you or you seek to understand more, contact us for a meeting where we demystify retirement planning and help you on your way to a prosperous retirement and future-oriented mindset.

Ask Us How We Can Help With Your Retirement Planning!

Content provided by Paradox Media.


This information is not intended to substitute for specific individualized tax, legal, or investment planning advice. Neither Royal Alliance Associates nor its representatives or employees provide legal or tax advice. If legal or tax advice or other expert assistance is required, the service of a currently practicing professional should be sought.

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