5 Easy Steps to Having a Retirement Plan

Consider what you want your investments to accomplish for you when you retire, even if it’s many years away.

Maybe you’d want to pay off your mortgage, help your grandchildren through college, go camping in your 10 favourite national parks, or start a new interest you haven’t had time for during your working years. It’s easier to prepare for retirement if you can picture what it will look like.

Despite the fact that you may not have a specific date for retirement in mind, saving and planning now is a good idea, so let’s go through five actions to assist you to create your retirement plan. (You may use our retirement savings checklist (PDF) to track your data as you go.)

1. Learn how much money you’ll need in retirement.

Here’s how to do it: Use our Retirement Wellness Planner, which gives a fast overview of how much money you’ll need in retirement. It also aids in the identification of a surplus or a deficit.

Fill out this form and plug in your current annual income, how often you’re paid, your pre-tax retirement contribution (a “deferral”) to your account, current retirement savings, anticipated Social Security benefits, current age, and desired retirement age. You can change the amount of your deferral by entering new figures into the boxes provided.

This is when a financial counsellor can be extremely useful if you want a completely customized retirement strategy. To discover more, look up how to pick and work with a financial professional.

2. Save. Invest. And save more.

According to most experts, 10% of your income (plus employer contributions) should go toward retirement. If you’ve started saving later in life, you may need to increase it.

Isn’t it a little too late? That’s OK. Keep what you can and promise to rise 1% each year until you reach the goal. Try to save enough so that your employer will match your contributions (if applicable).

3. Understand how Social Security fits into your overall retirement strategy.

Will it be there for you when you retire? Perhaps. Maybe not. Or it might be reduced or supplanted by something else. We know a lot about Social Security now:

  • The earliest age at which you can start receiving Social Security (or spousal benefits) is 62, but the longer you wait, the more money you will generally receive.
  • If you’re a middle-income earner looking to maintain 80–100% of your former salary after retirement, Social Security will provide about 40% of your pre-retirement earnings.
  • There are restrictions on how much money you may earn if you take Social Security before your full retirement age (currently 67, if you were born in 1960 or later) and work while receiving benefits.
  • You may be taxed on your benefits! Up to 85 per cent of your payment is taxable. It’s a complicated calculation, so have a look at the Social Security website for more information.

To estimate your potential future benefits, create a “My Social Security” profile at ssa.gov and enter the information in the retirement savings checklist (PDF).

There are several reasons to create an account, one of which is to safeguard your personal information. Only one account may be created per Social Security number and address, so establishing a profile is another method to keep your data private.

4. If you’re short, figure out how you’ll make up the difference.

If there’s a gap between what you’re saving and what you may need, you have choices. Consider the following scenarios:

  • Consider putting some money into your 401(k) retirement plan, especially if you aren’t saving enough to receive the full match. Determine how much it costs per week to contribute another 1% to your retirement account. It’s more manageable if it’s broken down into smaller chunks. Then bump up your deferrals by 1% when you can. That’s a good moment to increase them further.
  • Make regular annual payments to a Traditional Individual Retirement Account (IRA). It allows you to invest for the long term and defer taxes on gains until later, much like a 401(k).
  • If you’re 50 or older, contribute to your 401(k) (if your plan permits) or IRA.
  • Manage your debt so you can set aside extra money in your budget for long-term savings. (Consider how to pay off debt and save for retirement at the same time? Read 5 steps to balance both for further insight.)
  • If you can, plan to work longer. If you put off retirement by a year or two, you may increase your savings significantly.
  • Make a plan to improve your salary with hard work. Then, once you’ve saved up enough money, quit your job and move on to the next level of success.

5. Make a date with your 401(k) and IRA once or twice a year.

  • Make sure your asset allocation plan is up to date. Your retirement accounts should reflect your risk tolerance and objectives. To better understand your alternatives, brush up on asset classes and what’s in your retirement plan.
  • Check your savings rate. Have you been able to save more money? If not, consider adjusting your deferral or contributing to an IRA. (See No. 4 above.)
  • Update the contact information for all of your accounts, as well as any beneficiaries. If you have a Principal account, log in to make any necessary changes.