How to Build a Retirement Plan
A recent survey revealed that four out of every 10 Americans don't believe they'll ever be able to afford to retire.1 But this pervasive belief may be too pessimistic.
Even if your retirement account balances are behind schedule, there are some concrete steps you can take now to shore up your retirement assets. Below, find three questions that can help get you started on a solid plan for retirement.
What Are Your Retirement Goals?
There's no one-size-fits-all plan for retirement, nor is there a "magic number" everyone must reach to be able to afford to retire. After all, someone whose retirement plans include international travel and lots of charitable gifting is likely to have a much greater financial need than someone who wants to stick closer to home and pursue inexpensive hobbies.
Your own retirement plan should be based on your future goals.
- At what age do you want to retire?
- Do you plan to continue working part-time after retiring from a full-time position?
- How much monthly or annual income will you need in retirement to cover your expenses?
- What leisure activities do you want to pursue in retirement?
- What healthcare options will be available to you in retirement?
- If you're married, how does your spouse's retirement plan line up with yours?
- How long do you expect to need your retirement money to last?
- How much are you able to and/or do you plan to save for retirement?
These questions are a starting point for considering your retirement goals. Their answers can give you a better idea of what you'd like your retirement to look like—and how much you'll need to save to get there.
Where Do You Currently Stand?
Although peeking at your retirement accounts can be intimidating for those who worry their current savings aren't enough, it's important to know what assets you currently have at your disposal. When gathering information about your retirement accounts, don't forget about any 401(k)s or other retirement accounts that you might have forgotten to roll over from a former employer.
Those who have paid taxes into Social Security should also check their annual Social Security statement at ssa.gov to ensure their reported earnings are accurate.2 This statement can let you know how much you can expect to earn at full retirement age (67), as well as how much you'd earn if you become disabled before retirement and file for Social Security Disability benefits.[1]
Even if the answer to where your retirement assets stand isn't what you'd like it to be, there are adjustments you can make, from increasing your retirement age to sharing retirement expenses with other loved ones to boosting the amount you're currently saving.
How Can You Pursue Your Retirement Goal?
One of the key factors in pursuing your retirement goals isn't how much you contribute to your retirement accounts, but how these accounts are invested.
Contributing $12,000 per year for 15 years at a one percent rate of return won't get you much further ahead of where you would be if you contributed just half that amount—or $6,000 per year—for the same time period at an eight percent rate of return. (In this example, the first investor would have just over $193,000, while the second investor would have around $151,000).3
This can mean that if you're running a little behind schedule in your retirement accounts, the answer may not be as simple as "contribute more." Instead, you should also check that your contributions and balances are invested in a way that will provide you with a path toward your desired rate of return. Though there are no guarantees in the world of investing, a financial professional can work with you to help allocate your assets in a way that makes the most sense for you.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
[1] https://www.ssa.gov/benefits/retirement/planner/1960.html
1 https://www.fool.com/retirement/2020/05/30/40-of-americans-dont-think-they-can-retire-at-all.aspx
2 https://www.ssa.gov/myaccount/statement.html
3 https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
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