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Shaping Your Retirement Plan And Determining What You’ll Need

By Preston Osbourn II, CPA, EPC

June 16, 2021

Even if you think you have years to spare, it’s important to start planning for retirement now. What would you like your money to do for you once you stop working full-time? Maybe you would like to pay off your mortgage, help your grandkids with college expenses, or take a road trip around the country and visit every MLB stadium along the way. It’s easier to plan for a retirement you enjoy envisioning.

Once you have your goals in place, it’s time to start shaping your retirement plan.

Find Out How Much Money You Will Need In Retirement

You’ll need to consider your current annual income, how often you’re paid, your pre-tax contribution to your retirement account (also known as a “deferral”), current retirement savings, your estimated Social Security benefit, current age, and desired retirement age. Sound complicated? A financial professional can be a big help if you would like a customized retirement plan.

Save, Invest, and Save Some More

Most experts say at least 10% of your income (plus employer contributions) should go toward retirement. If you started saving later in life, you may need to bump that percentage up. The sooner you start contributing toward retirement, the more potential your money has for growth over time. It’s all about compound earnings — in other words, when your money earns more money.

Consider Options For Saving And Investing

  • Company-sponsored retirement plans, like a 401(k), 403(b), or a Thrift Savings Plan for government employees
  • Individual Retirement Accounts (IRAs)
  • Roth IRAs
  • A variety of investments such as mutual funds, stocks, and bonds
  • Life insurance that builds cash value

Know How Social Security Fits Into Your Retirement Plan

Will Social Security be around when you retire? Maybe, maybe not. It could be reduced or replaced by something else. This is what we know about Social Security today:

  • The earliest you can draw on your Social Security (or spousal benefits) is age 62, but generally, the longer you wait to take it, the more money you’ll receive.
  • If you take Social Security before your full retirement age (currently, the Federal Retirement Age is 66 and 10 months for workers who become eligible for retirement benefits in 2021) while still working and receiving benefits, there are limits on how much income you can make.
  • Your benefits can be taxed! Up to 85% of your check may be eligible. The calculation that goes into these taxes is complex, but you can learn more about it on the Social Security website.

If You’re Short On The Amount You Hoped For, Decide How You’ll Make Up The Difference

You have options if there’s a gap between what you’re saving now and what you will need. Consider the following.

  • Defer more money into your 401(k) retirement plan, especially if you’re not setting aside enough to receive a full company match. Make it easy: Determine how much you will need to put away every week to add another 1% to your retirement plan. We recommend increasing by 1% because bite-size goals are much more doable. Continue to bump your deferral by another 1% as you become able, such as when you get a promotion or a raise.
  • Make annual contributions to a traditional Individual Retirement Account (IRA). A 401(k) allows you to invest for the long term and pay taxes on earnings later.
  • Make catch-up contributions to your 401(k) (if your plan allows) or IRA if you’re age 50 or older.
  • Manage debt so you have more money in your budget for long-term savings.
  • Plan to work longer, if you’re able. Delaying retirement by a year or two could help boost your savings.
  • Work towards at bump in income and then save it. How? Change jobs, try for a promotion, or turn a side gig into extra cash flow.

Make A Date With Your 401(k) Plan And IRA Once Or Twice A Year

  • Review your asset allocation strategy. Your retirement accounts should match your risk tolerance and goals.
  • Check your progress. Are you saving more? If not, consider changing your deferral, adding money to your IRA, or making a catch-up contribution (see No. 4 above).
  • Update beneficiaries on your accounts and keep your contact information current.

If you’re feeling overwhelmed, or as if you’ll need to win the lottery to retire, know that you can count on us to help you figure out the best course of action. At Grimbleby Coleman CPAs, our team is well-versed in retirement and estate planning. Call your accountant today or email contactus@gccpas.net to ensure your retirement plan is setting up your future self for success.