Retirement Planning Basics

There are many factors to consider when developing a retirement income plan. After all, everyone has different retirement needs and goals, and your plan should reflect your own personal requirements for your situation. Here are some retirement planning basics which will help with your planning process.

Ask the Right Initial Questions

A good start to creating a successful retirement plan involves careful analysis. Answer these questions:

  • At what age would you like to retire?
  • How much do you currently have in retirement savings? 
  • What are your current living expenses? 
  • Based on an assumed inflation rate of 3-5%, what will your future living expenses be? 
  • Do you plan on working part time? 
  • What are your post retirement goals?

You need to tailor your retirement plan to your own circumstances. Once you have determined what sort of income you will need in the future, you’ll be able to make decisions about saving, investment, and employer-sponsored or other retirement plans. Planning methods should be different for employees, executives, and business owners.

Familiarize yourself with the Social Security system, and look into post-retirement health care insurance coverage, including Medicare and long-term care insurance (LTCI). Effective retirement planning will help you feel in control of your own future, and is possible whether you are financially comfortable or have limited means.

Determining Needs and Goals

3 minute retirement ready quiz

You need to evaluate your present circumstances and current financial picture:

  • Consider income, expenses, debts, assets.
  • What is your income?
  • What are your expenses?
  • What are your assets?
  • What are your debts?
  • What does your entire picture look like?

Now consider this in the context of your future circumstances as well as future living expenses. Will you continue living in your current home, or will you move to a condominium or retirement community? Do your children live nearby? Some retirees move to be closer to their families or to areas with a more desirable climate – will this be part of your future goals? 

How to Determine Retirement Age and Income Needs

There are four main sources for retirement income:

  • Social Security
  • Pensions or other retirement vehicles
  • An investment portfolio 
  • Personal savings

If your employer provides early retirement packages to its employees, you’ll need to know how to evaluate such packages from a number of perspectives. If you think your current income will not provide you with your desired retirement lifestyle, there are steps you can take now to change your circumstances.

How Do I Save for Retirement?

There are many retirement vehicles available, including:

  • Traditional and Roth IRAs
  • Employer-sponsored retirement plans
  • Non-qualified deferred compensation plans
  • Stock plans
  • Annuities

Proper retirement planning requires an understanding of the workings of these tools, and an understanding of how they may be taxed. 

This is especially important since the enactment of the Jobs and Growth Tax Relief Reconciliation Act of 2003. This initiative reduced the capital gains tax rates on certain dividends, making the decision to allocate assets inside or outside a retirement plan more crucial. Another thing to keep in mind is if you plan to pay for your child’s education, you will need to learn how to balance two competing financial needs.


Distributions from Retirement Plan Accounts

You should become familiar with the possible ramifications of distributions, which may include a 10% premature distribution penalty tax if distributions are made before you reach the age of 59.5. There are certain questions you will need to answer.

  • Can you borrow money from your retirement plan?
  • Would it be better to receive your retirement money as a lump sum or as monthly payments?
  • Can you roll your retirement plan balance into an IRA?
  • What are the tax implications of naming more than one beneficiary, if you are allowed to do so?
  • What are the required minimum distributions, if any, from the plan that you must start after you reach your 70s?

What about Business Owners and Their Retirement?

If you’re a business owner, you may want to plan for the succession of your business to a family member or other chosen recipient. You should also find out what retirement plans are best-suited to your type of business.

Suitable Retirement Plans for Small Business Owners or the Self-Employed 

  • Payroll deduction IRA plan 
  • Simplified employee pension (SEP) plan
  • SIMPLE IRA plan
  • SIMPLE 401(k) plan
  • Keogh plan

A Keogh plan is a qualified retirement plan established by a self-employed individual or partnership. Consulting with a qualified financial professional may help you determine the best solution for your needs.

Retirement Plans for Corporations

If your business has multiple employees, one of your goals in choosing a retirement plan should be to balance their needs against the needs of your business. Consider the following retirement plan options:

  • Payroll deduction IRA plan
  • Simplified employee pension (SEP) plan
  • SIMPLE IRA plan
  • SIMPLE 401(k) plan
  • 401(k) plan
  • Profit-sharing plan
  • Money purchase pension plan
  • Age-weighted profit-sharing plan
  • New comparability plan
  • Thrift/savings plan
  • Defined benefit plan
  • Employee stock ownership plan (ESOP)
  • Cash balance plan

Retirement Plans for Tax-Exempt Organizations

A tax-exempt organization has unique considerations for setting up a retirement plan because isn’t subject to federal income tax. An employer tax deduction is of little value, for example. There are two types of plans which meet the needs of tax-exempt organizations: a 403(b) plan or a 457(b) plan.

What is a Non-Qualified Deferred Compensation Plan?

You should also consider setting up a non-qualified deferred compensation plan, a flexible plan which does not need to satisfy stringent requirements. You and your employees could also receive greater benefits under a non-qualified plan because there are no limits on employer contributions.

Non-qualified plans do have three disadvantages:

  • They may not be as beneficial from a tax standpoint
  • They may only be available for a select group of employees
  • The assets within are not protected if the employer goes bankrupt

For these reasons qualified plans usually appeal more to employers than employees. Also, if you are an owner and wish to be included under the plan, a non-qualified deferred compensation plan will only be suitable if your business is a regular or Corporation.

Need assistance with your retirement planning, or have any questions? can help you by connecting you directly with a financial professional.

If you’re seeking tailored guidance, consider consulting a financial professional. Visit our “Find a Financial Professional” section to connect directly. For a personal referral to an independent, licensed advisor, call us at 877.476.9723 or contact us here to book your first appointment.

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