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9 Ways to Prepare for Retirement

A successful retirement life requires planning and putting that retirement plan into gear as soon as possible so time can work wonders in growing your investments.  Think about your future self.  What do you want to do in retirement?  What’s the dream?  Palm trees, pina coladas, traveling? Let’s think about the future now!  What does it take to deliver that dream?  Let’s establish a plan to take the greatest wealth-building tool, your income, and put a portion of it towards that dream.  How much do we have to put away today?  Only half of Americans have calculated how much they will need to save for retirement.  If we procrastinate for 5 or 10 years, the needed monthly investment amount goes up significantly to achieve the dream.  Take action now and review this retirement guide that outlines 9 retirement planning steps to make progress on making that dream reality.

When can you retire?

The timing of your retirement depends on three things:  Your level of spending in retirement, your length of retirement, and your expected income streams.  How much are you currently spending each month?  How much will that decrease in retirement?  How long will you live in retirement?  25 years?  Those answers need to be considered against expected income from pensions, social security, and annual withdrawals from investments.  If there is a gap, part-time work can supplement retirement needs, or retirement may need to be delayed a few years.  Start early, start today and make your money work for you with regularly scheduled investments to retirement accounts to minimize any gaps when it should be time to retire and have fun.

9 steps to retirement planning:

The average American will spend about 20 years in retirement, and social security is designed to fund only a portion, approximately 40%, of retirement needs.1 The remaining income is from pensions, investments, and possibly part-time employment. In order to get to palm trees tomorrow, there has to be a financial plan that aligns actions with keeping us on course.  Here are 9 steps in retirement planning that help keep us moving forward towards the goal.

1. Determine annual retirement spending needs

 An easy rule of thumb is that you’ll need to replace about 80 percent of your pre-retirement income.2  For example, if you’re making $60,000 a year (before taxes), you might need around $48,000 a year in retirement income to enjoy the same standard of living you had before retirement. This is the annual “cost of retirement”.

2. Start saving and take advantage of time

We do not need to do all the heavy lifting in retirement if starting early.  The “miracle of compounding” multiplies the savings impact of our investments.  Consider this:  Sue starts investing $500 a month at age 25 towards retirement.  John waits five more years after college and starts saving $500 a month at age 30.  When they both turn 60, Sue will have $1.1 million dollars, about $400,000 more than John. 

Stay committed to the plan and avoid withdrawing using 401K loans which reduce the compounding impact.

3. Contribute 15% of income towards retirement investments

Successful retirement investing requires routine regular investments in tax-advantaged accounts.  Make it a priority and set up automatic investments from each paycheck.  

First Priority:  Max out your employer's 401K match. Immediate positive boost to portfolio.  “Free” money, and you should definitely take advantage of it.

Second Priority:  Consider Roth IRA if you are eligible.  Contributions are post-tax dollars but grow tax-free and are not taxed again when you make withdrawals.

Third Priority: Continue to invest in 401K subject to a limit of  $20,500.

If you are not covered by employer retirement plans or eligible for Roth contributions, you can contribute to a Traditional IRA.  As you can see, there are many options to save for the future in tax-advantaged accounts.  

4. Select investment allocation based on risk tolerance

It is important to use the right mix of investments, called asset allocation, between stocks and bonds.  The average return over the past 90 years was 10% for equities and 5% for bonds.3  More stocks/equities will likely have higher returns but come with higher risk.  Moreover, instead of buying individual stocks or bonds, a great way to reduce risk is through diversification.  This can be done by investing in mutual funds that hold a basket of stocks, bonds, or both.  You can discuss asset allocation, fund choices, and risk tolerance with your financial advisor or choose target date funds that shift that equity/bond mix for you over time.  

5. Learn about pension plan(s) from employer(s)

Pensions, or defined benefit plans, are less common today due to the emergence of 401K-like plans.  The percentage of households with a pension is around 30%.4  If you are covered under a pension, it is important for you to understand different options like survivorship. Request a statement to review estimated benefits from the plan’s administrator.

6. Review your projected Social Security benefits

Your social security benefits can be reviewed on the Social Security website. Social Security normally provides about 40% of retiree's income.  The full retirement age is 67 (for those born after 1960) with 100% full payout of monthly benefits.  At age 62, 70% of the full payout would be paid monthly.  If benefits are delayed until age 70, they will be paid out at 124%.  Deciding when to claim benefits has a permanent impact on your retirement income streams.  Use the SS website to project expected benefits based on earnings scenarios.  It can be very helpful when planning your retirement.

7. Project investment values & determine annual investment income

Work with a fiduciary financial advisor to understand your current and future retirement investments.  Moreover, you can plan your withdrawals from this future value, normally expressed as a % of investment value.  You probably want to stay within 3% to 4% of your investment portfolio each year.  Be careful to avoid taking too much out in those first few years of retirement.  It can cause catastrophic problems much later down the road.  

8. Determine part-time income or other income in early retirement

If needed, could you work at a part-time job to supplement income?  This income would help reduce the strain of investment withdrawals and keep you active.  About 80% of workers 57 to 75-years old said they would rather be semi-retired than leave the workforce entirely.5

9. Develop an estate plan to protect your interests

Estate planning addresses your wishes at the end of your life both medically and financially.  Several legal documents need to be drafted by an attorney:

  • Will
  • Advanced medical directives, also called a Health Care Proxy
  • Durable Power of Attorney

Proper life insurance planning will avoid financial hardship on your death by covering funeral, debt, and establishing funds for income to support survivors. It is also important to update the beneficiaries on your life insurance policies and retirement accounts.

Additionally, depending on the estate, the use of trusts may be advantageous.  Hiring a good attorney and/or CPA locally who specializes in estate and tax planning can help you navigate through the many decisions.

The journey to your dream retirement begins now! 

To live the dream tomorrow takes purposeful action today!  It’s only through proper planning, routine investing, and monitoring annual progress that it all comes together.  Your dream years could last as long as the time it took to build the retirement opportunity. Visit us at Your Money Line to learn about other personal finance topics.


  1. 1. Top 10 Ways to Prepare for Retirement, Employee Benefits Security Administration, United States Department of Labor,  September 2021
  2. 2. Savings Fitness: A Guide to your Money and your Financial Future, Employee Benefits Security Administration, United States Department of Labor
  3. 3. Vanguard Historical Index Risk/Returns 1926-2019, https://advisors.vanguard.com/VGApp/iip/advisor/csa/analysisTools/portfolioAnalytics/historicalRiskReturn
  4. 4. LIMRA Secure Retirement Institute Analysis of 2019 Survey of Consumer Finances, Federal Reserve Board, 2020
  5. 5. “Baby boomers are killing the idea of retirement and want to work forever”, Tristan Bove, Fortune, January 12, 2022