Financial Planning for Retirement: Helpful Hints | Trust Company of America - Millennium Trust Company

Financial planning for retirement: Helpful hints

August 11, 2023
By Millennium Trust

Financial planning for retirement usually consists of setting aside money, whether through strategic investments or retirement savings accounts, to plan for the years when you will stop working. Planning for retirement is crucial to setting yourself up for financial security later in life.

Most of us first learn about financial planning for retirement with the first job that offers us a 401(k). And this is an excellent first step toward planning for the future, but that’s just it, a first step.

“Retirement planning isn’t just a 401(k) account, but how can you navigate many of the financial choices and decisions throughout your life, so you can still plan for retirement,” said Peter Welsh, managing director, retirement services sales at Millennium Trust.

Planning for retirement may seem overwhelming at first, but preparing for your future can help you manage the present too. It might help to look at planning for retirement through the lens of these steps: knowing when to start saving, how much to save, setting financial priorities, and finally, choosing what accounts to hold, and how to invest.

Let’s take a closer look at these steps as well as common retirement planning mistakes to avoid.

When can you start retirement?

There aren’t any hard and fast rules on when you can stop working, some people may retire earlier or later if they choose to. However, there are specific rules surrounding Social Security and when you can collect it.

You can begin collecting Social Security benefits at 62, but you will likely forfeit a portion of your benefits if you collect early. The age you can start collecting full Social Security benefits is 67. If you defer your collection until age 70, you may extend the life of your Social Security benefits as well as increase the dollar amount coming in each year.

There are also rules and regulations you need to consider with different retirement accounts. For example, with IRAs you must take a certain amount of money out of them once you reach a particular age — this is called a required minimum distribution (RMD). Starting in January 2023, the age when individuals have to take RMDs from traditional IRAs changed to 73.

(Be sure to check in with your tax adviser for more information on Social Security benefits and RMDs.)

Planning for retirement can start as early as you want, whether it’s that first 401(k) account or even investing in the stock market early on in your career. When it comes to retirement, many experts say the earlier the better, that way your investments can grow more over time. But even if you can’t start as early as you’d like, it’s never too late to plan for your future.

No matter when you start financial planning for retirement, the next step is understanding how much money you will need in your retirement.

Calculating how much you need for retirement

Figuring out retirement income needs looks different for everyone. Important factors everyone should consider when calculating their retirement include where you live, your cost of living, health care costs, and how you spend your money.

A good place to start is using a retirement income calculator. Tools like this one allow you to adjust your starting savings balance, age, annual contributions, and when you’d like to retire to get an idea of how much you’ll have every month in retirement.

In the years leading up to your retirement, knowing how much money you take home each month, how much you spend on essential costs (like housing, bills, transportation, and food), and what you have leftover will be crucial to understanding what you will need in retirement.

Setting financial priorities in retirement

Just as retirement may start differently for everyone, financial priorities during this time will also vary from person to person. But there are a few important aspects to consider when planning for retirement.

First off, how will you earn income during retirement? Will the bulk of your retirement income come from your investment portfolio? Will you work part-time to earn extra income?

Understanding where your income is stemming from is essential to being financially prepared in retirement. Another important part of being financially prepared is to cut unnecessary expenses and budget accordingly.

While budgeting can help you manage expenses, for many people retirement is a time of leisure. So, it’s important to ask yourself, how would you like to spend your time and money? Do you want to travel? Will you prioritize spending money on your hobbies or your home?

Of course, covering your essential costs is often the first order of business in retirement, but having an idea of how you want to enjoy your time will help you plan for a fulfilling retirement.

Understand how and where to invest your money

It’s true, there are a plethora of ways to save for retirement. But there are some common retirement accounts that may serve as good starting points: 401(k)s and IRAs. Each of these retirement accounts can come in Traditional (before tax contributions) and Roth (after tax contributions).

If you’re interested in choosing your own investments, including alternative investments, a self-directed IRA is an option.

Each of these types of accounts has different regulations and advantages, so it’s important to research each kind before opening an account, or to consult a financial advisor to understand what works best for you.

Retirement accounts can also be paired with other assets and accounts to ensure you’re preparing for every facet of life and retirement. There are several alternative ways to save for retirement or to contribute to expenses. Investing in alternative assets like real estate, hedge funds, precious metals, commodities, and more are options for diversifying your retirement portfolio if you determine that is appropriate.

“It’s important to take a holistic approach to savings and not forget about your short-term savings needs when putting away money for retirement,” Welsh said. “You may be able to allocate your savings among HSAs (healthcare savings accounts), ESFs (emergency savings funds), and 401(k)s appropriately.”

Allocating money toward health savings account, high-yield savings accounts, and emergency savings funds is another way to round out your financial planning for retirement. These types of accounts can help cover unexpected costs as well as health care-related costs.

What to avoid when planning for retirement

Most of us have gone through periods of changing jobs and employers. And these job changes could lead to leaving behind 401(k) accounts.

“As the job market shifts and individuals find new career opportunities or experience a layoff, even though they might not be thinking about it during those job and career changes, many may have a 401(k) retirement plan connected with a former employer,” Welsh said.

Leaving behind these accounts could mean losing out on hard-earned money set aside for your retirement. Luckily, there are ways to reconnect with your money.

“If you decide to leave an account with a former employer, keep up with both the account and the company. It’s important to consider that money, know where it is, and understand your options as you transition to your next step,” Welsh said. “Also, having updated contact information on file with your retirement accounts can have an impact on your ability to receive statements, tax documents, and RMD reminders – which if unseen or ignored, may result in penalties or fees otherwise.”

Another common mistake to avoid is cashing out of former employer 401(k) accounts. “What are some of the negatives? Early withdrawals are taxed as income and typically incur a 10% penalty, so early withdrawals from a 401(k) should only be for true emergencies,” Welsh said. “Even then, there are other options to explore like making contributions to an emergency savings fund for example.”

While it may be tempting to just close out an account and pocket the cash, if you roll the money into an IRA or new employer’s 401(k) account, you might see better long-term growth for your retirement plan. Plus, early withdrawals are typically taxed as income or might even come with early withdrawal penalty fines. Of course, it’s always wise to consult a financial adviser before closing an account or moving your money.

When you prioritize long-term growth in your retirement planning, the impact it’ll have on your future could be tangible. You could be more equipped to do what you really want in retirement and spend your money on what matters to you.

If you’re looking for somewhere to start financially planning for your retirement, Millennium Trust offers self-directed IRAs.


The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Millennium Trust Company performs the duties of a directed custodian, and as such does not offer or sell investments or provide investment, legal, or tax advice.

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