Retirement Planning. The Ultimate Guide


It is estimated that 10,000 baby-boomers turn 65 every day and this will go on up to the year 2030. On the other hand, only 4 out of 10 employees have stopped to think about how much they will live on during their retirement years. This is according to the Retirement Confidence Survey, a branch of the Employee Benefit Research Institute. To the country, the rate of retirement of employees poses a real concern so much that by the year 2033, the Social Security Disability Insurance Trust, for example, will have depleted its banks, only catering for 89 % of the benefits demanded by these senior citizens.

Do you need any further evidence of why retirement planning is important?

In this article, we put together valuable information regarding retirement planning in a guide that should help you prepare well for your retirement.

A simple retirement planning definition is the process by which one creates retirement income targets and works towards achieving them. This process involves making decisions about sources of income, coming up with a retirement budget, managing savings, investments, and debt settlement plans with the aim of increasing cash flow which one will benefit from in future.


Planning your finances

Planning your finances

Money might just as well be at the center of every aspect of your retirement. It helps to have a financial goal for your retirement and work towards it. The challenge, however, is working out exactly how much money you will need during retirement in order to set a financial goal. Several proposals have been put forward, for instance, Fidelity Investments puts the retirement figure at 6 times your annual salary by the time you clock 50, which translates to 15 % of one’s yearly pay starting from when they are 25 years of age. Fortune places a savings target of 60 % of pretax income while CNBC places it at a higher 70 % savings target of pretax income. Whichever strategy you choose to apply, here are some retirement planning questions you’ll need to ask yourself.


What kind of lifestyle do you plan to live in retirement?

Having an idea about the kind of life you want to live during retirement will help you set a realistic savings goal. You may want to continue with the same lifestyle you have now, live less, or live largely. All the same, with your current life as a benchmark, you should be in a position to tell whether you need to save more or less. This aside, there are some general guidelines that can help you make realistic savings targets, such as those put forward by Fortune, CNBC, Fidelity Investments, and other institutions.


How much do you earn currently?

This should be your first stop when working out a financial plan. It will help you estimate how much income you will live on during retirement. Ideally, you should live comfortably on 70-85 % of your current income during retirement.


Do you have other retirement income sources?

Social security, royalties, pension, or other investments. Having more sources of income means that you will depend less on your salary when saving for retirement.


How old are you now and at what age do you plan to retire?

This helps you to estimate how many years you have left to make your savings. Ideally, experts put the age when to start retirement planning as 25. Still, it is not too late to start if you are past this age. Again, if you are planning to retire early, you will need even more savings since you will live long after retirement. On the other hand, retiring at say 70 years of age means you will have a shorter life after retirement which gives you an opportunity to have more savings for blissful retirement life.


What is your estimated retirement lifespan?

In other words, how many years do you expect to live after retirement? What’s the current life expectancy according to statistics? Look into your family history, how long did your parents and grandparents live? Getting this figure will help you estimate how much of your savings you will need to withdraw annually after retirement.


Are pension and social security sufficient retirement savings?

Frankly, no.

Let’s face it, Social Insurance is already experiencing a shortage of funds thanks to a longer lifespan by the senior ones, a poor savings culture before retirement, trimmed benefits by employers, inflation, a high standard of living, and other factors.

Figure this out. If you’ll earn averagely $9,300 annually from the pension based on the Pension Rights Center statistics and an estimated $17,000 annually from social security, this gives you a total of $26,300 annually. Divide this figure by 12, and you get $1,442 earnings every month. This may not be enough unless you own your home and have cut down your expenses to the minimum.


Should working beyond retirement be an option?

This should be a personal decision. There are many reasons why someone would decide to go back to work after the age of 70. The fear of not being able to meet even the specific needs during retirement is one of the main reasons why seniors consider working beyond retirement. Other reasons why seniors resume work is:

  • Working certainly boosts one mental, social and physical abilities
  • Working to give back to the community
  • To boost savings to cater for medical needs since typically


Working out your figures

Working out your figures

Working out the exact figures for your retirement requirements can be complicated. While sound retirement planning advice calls for saving certain percentages of one’s income based on their age, this is easier said than done as it comes with far too many assumptions. Secondly, everyone’s case is uniquely different, the reason why you will need to go a step further to work out a formula that meets your personal needs.


Retirement planning calculator

An excellent tool for “retirement planning for dummies” is our retirement planning calculator because it eases your calculations. But first, you will need to draw a budget for your life.

Next, using the retirement calculator below, perform your own personal calculation. You will have factored most elements including your other income sources, your savings, and inflation.

In case you have debts like bank loans and mortgages, then do not forget to factor these in your calculation.


Wealth creation options with your current income

Wealth creation options with your current income

With a constant stream of income before your retirement, you may opt for the savings or the investment route. While savings will earn you interest, investments have potentially higher profits but with a greater risk.



If for instance, you have $1 million in savings by the age of 65, this amount can earn you $40,000 annually in interest going by the 4 % rule. Therefore, if you have opted to go this route, you may need to work towards saving this amount or more by the age of 65 or 70. However, if this interest is not enough to keep you going, you will need to figure out how to either increase your savings or increase your income.

Here are some principles of savings:

  • Savings work best for shorter-term goals of no more than 3 years
  • Savings are good for very specific financial goals, for instance, emergency funds.
  • With a savings account, your cash is readily accessible within the requirements of the type of savings account that you have.
  • Saving is a relatively low-risk low-returns investment.

Retirement savings accounts you should consider:

Retirement planning 401 (k) or 403 (b) employer accounts

Apparently, this is the most popular retirement planning for millennials and other working-class individuals. While the 401 (k) employee benefit plan is offered by for-profit companies, the 403 (b) pension plan is similar to it only that it is a retirement planning for teachers and other public service and nonprofit companies employees. These plans employ a specific matching formula that allows contributions both from the employee and the employer, for instance, a 50:50 match where the employee may contribute 3 % of their salary and the employer another 3 % totaling to a 6 % contribution to the employee’s pension scheme each month. This contribution is not taxed, hence the employee will have the amount deferred before tax is deducted.

Solo 401 (k)

Those who are not in employment can still be part of the 401 (k) pension plan through the Solo 401 (K) scheme. This pension plan is available to sole proprietors whereby one makes a contribution as both the employer and employee. This plan has a higher contribution limit of up to $56,000 compared to the $19,000 limit in the normal 401 (k) plan.

For both the 401 (k) and solo 401 (k), the contribution limit is higher for those who are 50 years and above.

IRA (Individual Retirement Account)

An individual retirement investment account allows one to save for his/her retirement while still enjoying tax advantage. The advantage of this account besides tax relief is that you can have it alongside the (k) accounts. It comes with a limit of $6000 per year as and $7000 if you decide to start your retirement planning in your 50s.

IRA accounts allow you to invest in mutual funds, bonds, stocks, and other investments. One gets to make the investment decisions or pass this role to a professional whom they have hired.

There are various IRA plans. These include:-

  • Simple IRA. A simple IRA is based on either a match of 3 % annual contribution by both the employee and the employer or a non-elective 2 % contribution made by the employer regardless of whether the employee contributes or not. This is the best retirement planning for business owners with unstable cash flow and has a limit of $13,000 and $16,000 for those over 50 years of age.
  • SEP IRA. The Simplified Employee Pension plan is a simplified pension savings plan available to small business employers with up to 100 employees who desire a retirement savings scheme for their employees but without complicated paperwork. An employer can either match their employee deduction or define an unmatched contribution. SEP has a limit of 25 % of $56,000 annual contribution as of the year.
  • ROTH IRA. As opposed to simplified and SEP IRAs where tax is not charged on contributions but during withdrawal, ROTH contribution is remitted after-tax on income. On the other hand, however, no tax will apply as your money grows as well as during withdrawals after one attains the age of 59.5 years. One qualifies for ROTH IRA if their income if single is the same as or less than $137,000 or $203,000 when married and filing jointly with a spouse. You can be a contributor to both traditional and ROTH IRA accounts.
  • Cash Balance Pension Plan. For people with a higher income looking for a place to keep their money before it is taxed, the cash balance pension plan makes a good option. It is also an acceptable way for small businesses to lower their tax liability.



While this is usually the more rewarding option, some shy away from it because of the high risk involved. Investments are good retirement planning options if you have larger, long-term financial goals that will go up to or beyond 5 years. Secondly, it is not as easy to access cash from your investments as fast as you would your savings.

Some investment options you can consider to meet your retirement goals include:

  • Mutual funds. Retirement planning with mutual funds is popular among individuals wishing to invest their money in various securities including bonds and stocks through expert management. Mutual funds pool shareholder’s money and then invest in the various instruments.
  • Certificate of Deposit (CD). Some retirement planning companies like banks offer a certificate of deposits to their clients as a way of maximizing the returns of their savings. This option is more like loaning the bank your money for a period of time in exchange for guaranteed interest. It is a great option for those who desire the lowest risk for their investments.
  • Stocks and Bonds. A combination of one’s cash, stocks and bonds investment is known as asset allocation. Owning a certain company’s stock is having a stake or being part of its ownership. Bonds, on the other hand, are similar to loaning a company or the government for a period of time during which you benefit from interest earned.
  • Real estate. Real estate investment should be a long term investment option. Consider real estate investment trusts and rental income.
  • Annuities. Retirement planning with annuities, specifically deferred annuities are a good option for people who want to receive a steady stream of income during retirement. Annuities also come with tax benefits.


Should I hold off retirement savings contributions to settle a debt?

retirement savings

While settling off your liabilities should be part of your retirement planning basics, especially when the interest seems to be higher than the interest you would earn from your savings, some situations demand that you prioritize savings. This does not mean you hold off paying your debts completely, no. Secondly, if you can pay off your loan debt while at the same time contributing to your savings account, this is highly encouraged.

Here are situations in which you could prioritize debts over retirement or emergency savings.

  • When you have several loans to a point where you are almost out of control of your finances and this is affecting you emotionally
  • When the interest is paid off for debts (which is always the case), as mentioned above, is higher than the interest you would earn if you were saving. The idea is to reduce your debts to a manageable level before you can start saving while still paying off your debt loan.
  • When your savings are invested in a high-risk investment, for instance, the stock market
  • If you need to fix your credit score to invest in something like a home or a car.

In these other situations, you could consider savings over debts

  • To take advantage of your employer matching contribution
  • When you do not have emergency funds. Such a situation can lead you into more borrowing in the event of an emergency.
  • If you have a low-interest debt, consider hitting your emergency fund (up to 6 months of expenses) target first.


Planning your stay

Planning your stay

You may choose to continue staying in your current home after retirement, move to a smaller one, or move to a more accommodative environment. Regardless of your decision, it is important to plan for where you will stay comfortably after retirement and ensure that your finances will fit in with the cost that goes with your decision.

Here are options you can consider when planning for where to stay during retirement.


Renovating your current home

For many, this is usually the best option first because they are already attached to the environment and secondly because here, they can be visited freely by family and friends. In this case, you will need to take steps to convert your home into a senior-friendly home.

Depending on the size of your home, the cost of remodeling your home cannot be overlooked which is why retirement planning is necessary. Involve a professional if possible. This way, you will be able to get the exact figure of the cost of remodeling and do it over time as your finances will allow.

Check out our Safety Checklist for the Elderly for guidelines on how to prep your home for old age.


Downgrading to a smaller house

People move to a smaller house during retirement for various reasons:

  • When they feel they do need a large space after the children have gone
  • When they feel they need a smaller secure house that will allow them to lock and travel around with ease
  • As a way of cutting down costs in terms of reduced mortgage repayment or lower maintenance costs
  • To find a house that accommodates seniorhood to avoid renovating the current house
  • To move to a neighborhood with friends or other seniors for social reasons


Moving into an assisted living facility

If you anticipate that you will need care beyond the normal for one reason or another, consider living in an assisted living facility, for instance, a nursing home, care homes, or others. An assisted living facility differs from a nursing home in that while the former offers regular help with the day to day activities, nursing homes offer more specialized care for frail, sickly, or sensitive people.

All the same, you will need to think about the cost associated with your decision to live in an assisted facility.


Planning for care

Old age comes with the need for care. While making every other necessary plan for retirement, it is important to factor in the cost of professional care whether it will be delivered within your home or in a senior’s facility. It is estimated that the cost of hiring professional caregiver working for 44 hours per week may add up to $49,000 per year. You may also need help with the usual errands around the home like food preparation, cleaning, and movement facilitation which comes with its own cost.


Planning for health

Planning for health

Health is critical, especially after retirement, and must be included in the retirement budget. Secondly, the cost of health tends to increase with age, so whatever you are spending now towards health will definitely increase after retirement.

If you were eligible and were already making contributions to Medicare you are certainly better off than one who planning to get health insurance after retirement. Just like in the other retirement savings accounts are tax exempt. An individual has an annual limit of $3,500 and a family, $7,000. Those above 55 years have can contribute up to $1,000 in their health savings account.

You are allowed to withdraw from your health savings account when a medical-related need arises. On the other hand, if you attain the age of 65 without making any withdrawals, you can use your savings for other purposes and for this, income tax applies for withdrawals.

You can also channel your savings to other insurance plans including long term care insurance, dental insurance, and others.


Retirement planning checklist

The below retirement planning checklist is a simplified version of everything we have covered in this article.

Budget. Come up with a budget for your expected annual expenses during retirement. From this, you can draw a detailed monthly budget. This will help you know how much you need in order to make realistic savings goals.

Sources of income. Lay out all your sources of retirement income and work out a practical savings strategy for retirement. If, for instance, your pension and/or social security will not be enough to cater for your needs, consider additional savings, additional streams of income, cutting your budget, or working after retirement.

To work or not to work after retirement. Depending on your reasons, working or running a small business after retirement can be fulfilling. It does not have to be attached to monetary gains although this will come as a result. It is a way of giving back to society so you may consider forming networks or doing your research early enough to help you have a smooth transition from official duty.

Savings. Once you have drawn a budget and estimated your expenses you should be in a position to make the right decision about savings. If you realize that the savings from your employment earnings will not be enough, it is time to make some decisions that will help you achieve your retirement savings goals. Assuming you have estimated your annual budget to be $50,000 after retirement. Multiply this figure by 25 (number of years) and you’ll realize that you need at least $1,250,000 in savings before retirement.

Investments. Engage a financial advisor if possible, to help you with your investments decisions. A good strategy in investment can leave you with enough cash flow to live a comfortable life after retirement.

Accommodation. Your plan must include your accommodation needs to the very end. Whatever option you choose. Be open to staying in an assisted living facility if it comes to this and budget for the cost of care. If you are considering downsizing, plan how you will reduce the items in your house slowly without a hassle. Some charity organizations could benefit from these items.

Long term care. A good place to start is to identify a long term care insurance that fits you. Otherwise, you will be forced to save diligently towards this course.

Healthcare. Based on your family history and your personal life, it is possible to gauge how much will go towards healthcare. You also need to decide how your healthcare costs will be catered for. Check your Medicare eligibility and consider having an emergency fund to cater for the unexpected. Apart from medical costs, you can consider promoting sound health by checking out yoga, gym, and eating healthy.

Your retirement accounts. These can only be arrived at after knowing your sources of income and expenses. You will come up with a strategy for the long and short term. Do not forget that some accounts incur taxes during withdrawals. Consider withdrawing from your taxed accounts first.

Other activities. If you never had the time due to a busy work-family schedule, this is the time to pursue your interests and your hobbies fully. This is because you will have a lot of free time and these activities will be excellent mind boosters.



We hope that this retirement planning guide will help you settle down well in your sunset years. It pays to work with experts. Consider working with a team including a financial and/or tax advisor, health professional, and an estate agent. This way, you will not be gambling with your future.

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