What is a Retirement Plan​ & How to Start

TL;DR: Retirement planning is key to a secure future. Understand your options, set goals, and start saving early. A financial advisor can help you create a personalized plan.

Main Points:

• Types of Retirement Plans: 401(k), IRA, Pensions, SEP, SIMPLE
• Planning Your Needs: Estimate expenses, set goals (short-term & long-term)
• Choosing a Plan: Consider employer match, contribution limits, tax benefits, investment options, portability, and retirement benefits.
• How to Start: Assess finances, determine retirement age, calculate needs, create savings plan, choose a plan, and invest wisely.
• Seek Professional Advice: A financial advisor can provide personalized guidance.

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A retirement plan is more than simply a financial strategy. At Elite Income Advisors, we consider it a roadmap to a fulfilling and secure future.

As life expectancies increase and the nature of retirement evolves, understanding how to plan for this next chapter effectively becomes crucial. Whether you dream of traveling the world, pursuing long-held passions, or simply enjoying a peaceful life at home, the best retirement plan can help you achieve your aspirations without the burden of financial stress.

Here are our expert tips to help you get started with planning for retirement.

Understanding Retirement Plans

As you’re likely familiar with, a retirement plan is a financial strategy to replace employment income upon retirement. It ensures your golden years are comfortable and you are able to live within your means after leaving the workforce.

Retirement plans are typically set up by employers, however they can also be opened by individuals themselves. Regardless, these plans allow individuals to save a portion of their earnings as they work so they can rely on these savings during retirement.

Types of Retirement Plans

There are many different ways to save for retirement. The IRS outlines some of the most common types of retirement plans and what makes each unique:

• 401(k) Plans: These plans allow employees to save and invest a portion of their paycheck before taxes are taken out. An employer match is usually offered, which boosts the employee’s savings.
• Individual Retirement Accounts (IRAs): Offer individuals the opportunity to save independently of employer-based plans. Traditional IRAs provide tax-deferred growth, meaning you pay taxes on your investments when you withdraw in retirement. Roth IRAs allow for tax-free growth and withdrawals.
• Pensions: Once the cornerstone of retirement planning, traditional pension plans are employer-sponsored retirement plans that promise a specified monthly benefit upon retirement. This payment is usually based on salary and years of service.
• Simplified Employee Pension (SEP) and Savings Incentive Match Plan for Employees (SIMPLE): These plans are easier to set up and maintain than conventional retirement plans and are ideal for small businesses or self-employed individuals.

When comparing plans, it’s important to consider factors like tax advantages and qualifications. For instance, qualified retirement plans like 401(k)s and traditional pensions are covered under the Employee Retirement Income Security Act (ERISA). This shows that the plan satisfies the Internal Revenue Code in both form and operation

Planning for Your Retirement Needs

The first question you need to ask as you start planning for retirement is how much you need to save.

Start by estimating your annual living expenses in retirement. This can include everything from housing and healthcare to travel, leisure, and daily living costs. Not only should you consider how much you’re spending now, but also how expenses might change over time due to inflation.

Set Retirement Goals

Defined goals can also help your retirement roadmap take shape. These can vary from person to person. You may wish to retire early and travel, while someone else might focus on hobbies or volunteering.

This is why there’s no one-size-fits-all approach to retirement planning. Make sure to consider your:

• Short-term vs. Long-term Goals: Identify what you want your retirement to look like in the early years versus later years.
• Financial Goals: Set specific financial targets for different stages of your retirement. This can include saving goals, investment income targets, or debt reduction plans.

Choosing the Best Plan for Retirement

With a solid understanding of the type of retirement plans available and your goals for the future, it’s time to choose a plan.

Remember, the best plan for retirement for your coworker or family member may be different than what is best for you. Keep these factors in mind to help you find a plan that aligns with your financial goals and future:

• Plan Sponsors: If your employer offers a retirement plan with matching contributions, you may want to take full advantage of this opportunity to boost your savings.
• Contribution Limits and Flexibility: Retirement plans vary in terms of how much you can contribute annually and the flexibility they offer for withdrawals. Consider plans that align with your ability to save and your financial needs during retirement.
• Tax Benefits: Some plans, like traditional 401(k)s and IRAs, offer tax-deferred growth, meaning you don’t pay taxes on the money until you withdraw it in retirement. Others, like Roth IRAs and Roth 401(k)s, are funded with after-tax dollars.
• Investment Options: Different plans offer different investment options. Choose a plan that offers the investment options that best match your risk tolerance and investment strategy.
• Portability: Consider whether you can roll over your savings into another plan without penalties if you change jobs.
• Retirement Benefits: Some plans may offer additional features such as catch-up contributions for individuals age 50 or older, loan provisions, or hardship withdrawals. These features can provide more flexibility and control over your retirement savings.

How to Start Planning for Retirement

Planning for retirement can feel daunting. However, the more prepared you are the more you can enjoy this new chapter!

Here is a quick recap of the steps you can take today to start planning for your future:

1. Assess Your Financial Situation: Evaluate your current financial status, including income, debts, expenses, and existing savings.
2. Determine Your Retirement Age: Decide at what age you aim to retire. This will impact how aggressively you need to save and invest.
3. Calculate Your Retirement Needs: Use retirement calculators to estimate how much money you will need to support your desired lifestyle in retirement.
4. Create a Savings Plan: Decide how much you need to save each month to reach your retirement goals.
5. Choose a Retirement Plan: Select a retirement plan that best meets your needs.
6. Invest Wisely: Allocate your investments according to your risk tolerance and time horizon.

While it’s possible to build a retirement plan on your own, professional advice from a trusted financial advisor can be invaluable. A financial advisor can help you understand the different retirement products and investment strategies available. They also provide personalized advice tailored to your financial situation to help you stay on track with your goals even as they change over time.

Discover how our retirement planning services can help you achieve your goals.