Retirement Planning

Saving for Retirement

The key to a comfortable retirement is saving early. How much money you’ll need in retirement will depend on when you retire, your estimated life expectancy, and your living and medical expenses.

The average worker will want to have between 12 and 14 times their annual income tucked away. This usually means devoting between 10-15% of your regular earnings to a retirement plan. If you’re an older worker just starting to plan for retirement, you’ll want to save more to catch up.

There are many ways to save money, such as:

• Pensions: Pensions are employer-sponsored plans that pay benefits to retired employees. Benefits are typically based on how many years of service an employee has with a company. The employer manages the pension fund and pays benefits to the employee in retirement.
• 401(k), 403(b), and 457 plans: Many employers set up retirement investment accounts for their employees. The employer pays maintenance fees, while the employee contributes money from their paychecks to the account. Some employers offer matching contributions.
• Individual Retirement Account (IRA): An IRA is similar to a 401(k), except an individual may set up an IRA without the help of their employer. You may open a traditional IRA or Roth IRA, which differ in their tax treatments and income limits.
• Keogh Plans: Keogh plans are similar to 401(k)s, but they are designed for the self-employed. They have different rules about how much the owner can contribute and whether those contributions are tax-favored.

Learn about the different types of retirement plans before opening and investing in an account. It’s also a good idea to create a budget and savings goals so you can live comfortably in retirement.

Creating a Retirement Plan

There are many ways to save for retirement, and you will want to carefully craft a retirement plan to fit your needs. Individuals who qualify for Social Security retirement benefits will be able to receive monthly payments. Benefits are based on their lifetime earnings. However, Social Security will rarely provide enough financial support on its own.

Retirement plans like 401(k)s and traditional defined benefit pensions can be important sources of income. If you don’t receive retirement benefits from an employer, you can still open your own IRA to start saving. The type of account you create will determine when and how the taxes paid on your retirement funds are collected.

When to Retire and How to Withdraw Your Funds

To ensure that these funds are actually used for retirement, there are often restrictions on when you can begin withdrawing them. If you’re planning on early retirement, the earliest you can begin collecting your Social Security retirement benefits is age 62. However, withdrawing early will lead to a lower monthly benefit than if you begin receiving payments at full retirement age or later.

Private sector retirement plans, like a 401(k) or IRA, also have limits on when you can begin withdrawing your funds. You typically can’t withdraw from your 401(k) or IRA before age 59 1/2, with certain important exceptions. If you do, you’ll be hit with a punitive 25% penalty on the funds you withdraw, in addition to any taxes that may apply to those benefits.

If you’re planning on working past normal retirement age, your available benefits could increase. Social Security rewards later retirement by increasing your monthly payments when you defer collecting benefits beyond full retirement age. Your 401(k) or IRA investments may continue to grow if you do not withdraw your funds. However, benefits for late retirement stop accruing with Social Security at age 70. Often, you must begin withdrawing from your IRA or 401(k) at 70 1/2 years old.

Getting Legal Help with Retirement

Whether you’re retiring this year or looking ahead to retirement in 40 years, you might need legal advice for matters such as:

• Deciding whether to place assets in a trust
• Reducing your tax liability and avoiding penalties
• Maximizing and claiming Social Security benefits
• Preparing for long-term care needs and Medicare eligibility
• Aligning your retirement plan with your estate plan
• Resolving a dispute with an employer, plan administrator, or financial advisor

Successful retirement planning requires balancing many objectives at once, from how much savings to set aside today to how to maximize your retirement funds later in life. Contact a qualified retirement attorney for help with establishing a retirement plan that works for you.