How to Create Your Retirement Plan

If the potential to more than double your retirement savings got you excited, then you’re probably ready to get started on that plan, right?

Your plan will have three phases, and while the second and third phases can be years in the future, you can sit down today and forecast your financial situation for each phase. Think of it the same way you do your budget. You’re making a plan for your money before you actually have it, based on projections for your income and expenses.

It’s important to start with a solid financial foundation, so the first phase begins as soon as you are debt-free and have saved 3–6 months of expenses in your emergency fund.

MyTMMO

Phase One: Simply Save

In the first phase, you’ll invest 15% of your income in good growth stock mutual funds through tax-advantaged retirement plans such as your employer’s 401(k) and a Roth IRA. It may not sound like much, but if you don’t follow through on this step, you won’t have any savings to make decisions about down the road.

Your goal is to consistently invest for retirement as you focus on other financial obligations such as funding college for your kids and buying or paying off your home. A couple with the household median income of $50,000 could have $1.2 million for retirement after 25 years.

Phase Two: Dig Into the Details

Now, envision what retirement will look like for you by estimating the income your nest egg will bring. Using the example above, our couple’s $1.2 million will remain invested and growing at the long-term historical average. Estimating inflation at 4% means they can plan to live on an 8% income, or $96,000 a year ($1.2 million x 8% = $96,000).

This plan allows you to live off the growth of your savings rather than depleting it. With careful monitoring and some modest adjustments in years with low returns, you can be confident that your savings will last throughout your retirement.

Phase Three: Retirement Reality

Using your monthly budget, compare your expenses to your retirement savings projections to see where you stand. With an empty nest and a paid-for home, you can plan to ramp up your retirement savings if necessary.

Based on your forecasts you can answer several questions: Will you need (or want) to continue working? Will you sell your home? What will you do for fun? What about medical expenses and long-term care?

Remember, too, at age 60, most people will need to purchase long-term care (LTC) insurance. LTC insurance will protect the money you’ve saved for retirement by helping pay for the expenses of a nursing home or in-home care if you need it. Keep that in mind as you estimate your retirement budget.

Advice to Help You Start Right

Obviously, these are decisions and calculations you can make on your own. But an investing advisor can help you make sure your planning is on track and stays that way. Dave’s investing Endorsed Local Providers (ELPs) are experienced professionals with the heart of a teacher. Your ELP can help you create a great retirement plan Dave would approve of. Contact your ELP today.

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