Where do I start with retirement planning, and how does that change with my age bracket?

Where do I start with retirement planning, and how does that change with my age bracket?
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Where do I start with retirement planning, and how does that change with my age bracket?


Retirement planning basically consists of determining where, financially, individuals are now and where they need to be when they retire in order to support a desired lifestyle during retirement.

The planning process incorporated in the simple statement above involves analysis and planning for numerous factors including the following:

·  Remaining work life expectancy

·  Life expectancy during retirement, years of retirement

·  Savings rate, timing and investment allocation decisions

·  Investment returns expectations

·  Inflation expectations and resulting loss of purchasing power

·  Retirement income needs and goals, including possible long term care needs

·  Sources of retirement income such as social security, pension and investments

·  Income tax considerations

·  Desired quality of life during retirement ?

The process of planning for retirement includes consideration of personal life goals and the financial planning required to achieve each unique life plan both prior to and during retirement. Such a plan may include possible family and household formation, education costs, travel and any other planned major expenses. ?The earlier in life individuals begin planning and providing for retirement, the less is needed in terms of the required savings rate to achieve retirement goals. In general, persons who begin the financial security planning process at an early age, say 25-30, need to save 10-15 percent of their gross annual income. If individuals delay retirement saving, they will need to save a greater portion of their earnings to compensate for the missed years of saving contributions and the resulting compounding of investment returns. If individuals wait until a later age, say 45-55, they may need to save 20-25 percent of gross income to adequately fund retirement. These examples are estimates and are based on assumptions regarding all of the factors listed above. ?Due to the complex nature of retirement planning, financial planners are often enlisted to provide direction and guidance. The best, first step for retirement planning is to meet with a financial planner and identify relevant, personal information and establish financial, life and retirement goals. 


Start as soon as you begin employment so that you will reap the greatest benefits through the “magic “of compound interest.

I advise 25 year-old clients to contribute 10% of their income to 401Ks or other retirement plans.  Keeping that up, they should be able to largely self-fund their retirement needs.  Later starts require saving an increasingly higher percentage of income to reach the same end goal.


The best way to get started with retirement planning is to simply stop thinking about it and take action. Contribute to your 401(k) at work. Set up an IRA (Individual Retirement Arrangement). Don’t over think it – the most important thing is to begin and get your funds into your investment! The reason why is that the longer you have your money invested, the longer it has to compound and grow.

Your age will generally correlate with the amount of risk that makes sense for you to take with your retirement investments. When younger, it is OK to take more risk in order to seek higher gains because there’s more time to ride through market cycles. When closer to retirement, it is generally advisable to be more conservative with your investments as there’s less time to play catch-up should the market take a dive.


By all means read all the responses posted by advisors because what makes sense to one person in a response does not necessarily resonate with the next person.  Each response takes a slightly different path.  Here is my view based on my experience.

1.  Most of your savings will take place after the age of 50.  At that point in life you are or close to being an empty nester is you have children, your income is higher than it has ever been and there is a chance both spouses(assuming your are married) are working.  Savings and accumulation are finally beginning to outpace spending.  This is especially true in the SF Bay area where living expenses are so high.

2.  As far as saving when you are younger the priority I would recommend is:

p>A.  401k/403b up to match

B.  Roth IRA if you qualify up to the maximum contribution because of the flexibility of your contributions which can be withdrawn at any time.  This is not true of Roth conversions.

C.  Back to the 401k/403b

3.  Mange your spending during years of having a family and maybe purchasing a home.
p>A.  Try to send your children to public school or purchase a home in a town where you are comfortable sending you children to public schools.  Private school in general is very expensive and makes it very difficult to save any money at all.

B.  If you decide to purchase a home be realistic about how much of a mortgage you take out.

C.  Track your expenses using one of the many on line tools available.  This will give you a tool to be intentional and aware about spending.

4.  If your combined family income is under $100k and you have a family saving funds for any purpose in the SF Bay area requires discipline.  It can be done however it is important to be realistic about your goals and not get frustrated about the difficulty of saving money.  Life is a series of trade offs.  If you choose to live in the SF Bay area the cost of living sometimes requires you to choose lifestyle over other savings for any purpose.  Because you can move to an area that is less expensive you do have the power to make different decisions that would make it easier to save.  It is important to consciously take responsibility for your choices.   This is an important aspect of learning to make better decisions. 

If your family income is higher then you have more options about the decisions you make.  These are the issues an advisor can assist you with. 
As you grow older you will be faced with more decisions that impact when you begin to save and how much you save.  
A decision such as starting a business of your own or working for a startup that offers equity vs. higher income, decisions about funding higher education for your children, decisions about private vs. public school all impact your ever changing personal finance and life goals.  


One of the most important things you can do to start planning for retirement is to start as early as possible.  It's also a good idea to start with an understanding of your risk profile, time horizon and financial objectives/income need.  If you work with a financial professional, have a retirement plan created that will estimate how much you need to save to reach your income need in retirement.  There are also many online tools available to help with estimating an appropriate savings rate.  Retirement savings estimates will vary greatly based on when you are starting, risk tolerance, time horizon and financial objectives/income need.  For most people, it makes sense to start with a growth allocation and move to a more conservative allocation closer to retirement.  Even in the distribution phase, most people still need a growth element to their portfolio.  Other things to consider:

·  Make retirement savings automatic.  This is the case with most employer retirement plans, but if using an individual retirement account (IRA) set up automatic contributions. 

·  Determine how much you can afford to contribute.  Understand your balance sheet and determine if it makes sense to pay down debt vs. contributing to retirement savings.

·  Try to increase retirement savings with pay increases.  For instance, if you receive a 2% pay raise, try to put some of it towards retirement savings.

·  For business owners, take advantage of the different retirement savings vehicle out there.

·  If your employer offers a retirement plan with matching contribution, try to contribute at least as much as the employer is matching. 

·  Don’t neglect the impact that inflation and longevity will have on your retirement savings.


While I agree with most of the answers posted above, the real place to start your retirement planning is to try to get a vision of the retirement lifestyle you want to live.  Is your vision one of traveling the world, joining a golf club, or simply slowing down a bit and taking some local classes?  Once you have a vision (which will most likely change over the years), you can't start figuring out what resources you will need to get to where you want to go.


You should begin financial planning immediately.  Although your needs and objectives will change throughout your life, there are specific planning needs that require you to plan early and plan consistently throughout your life.  The earlier you begin saving for retirement, the more time you have for your assets to grow.  As you age, the level of risk you should take with your investments, in general, will decrease.  Earlier in life you may be saving for your first home, or for educational expenses for children, while as you get closer to retirement, planning for retirement expenses take priority.  Later you will begin to think about estate planning needs - transferring assets to beneficiaries, legacy issues, etc.  Because things change as you age, your financial plan should be updated regularly to reflect your specific, personal needs through the various phases of your life.


You should start to prepare for retirement on the first day of your first job.  Saving early is a very powerful first step to achieving a comfortable retirement.  If your employer provides a retirement plan such as a 401k you should try to max out your contributions from the start.  When you are young you can be a little more aggressive and invest more in stocks since you have many years to ride out the ups and downs of the market and stocks are a good tool for growing your retirement assets above the rate of inflation.   Just be sure to have a well diversified portfolio of assets in your retirement account.  As you get closer to retirement age you should transition your investments to more conservative holdings.


There are some basic steps that will help you answer your question.

First - do a comprehensive inventory of your existing investments. How much capital do you have? Where is it invested? What is your expected return for those investments over the next 10-15 years?

Then determine your time horizon. It probably should be assess on two levels - your accumulation years and your disbursement years. These two numbers will give you an good idea of how to structure your investments.

Third, determine a goal. How much income do you need at the cross over point - when you convert from accumulation to disbursement? 

This next step is the hard part - how much capital will you need at the cross over point to achieve your objective? This will require you to look at all of your income sources and your current investment capital. You will need to assess the amount of income these sources will provide. The difference between your goal and what you have in place is your Income Gap.

Once you determine the Income gap - the gap between what you can expect from your existing income sources and what you need - you can then determine how much you will have to save and invest to fill the gap. To do this effectively, you need to have a good estimate of investment return. Be conservative so you don't undershoot your target.

Your question is all about "What you have and What you need?" If you can do this yourself, great. But if not, you may want to find someone who can help you make the calculations.

Hope this helps.


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