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 earnings to a retirement plan. If you're an older worker just starting to plan for retirement, you'll want to set even more aside.

There are a number of other ways to save money:

• Pensions: Pensions are employer-sponsored plans that pay benefits to retired employees typically based on how many years of service an employee had with a company. The employer manages the pension fund and pays benefits to the employee after they retire.
• 401(k), 403(b), and 457 plans: Many employers set up retirement investment accounts for their employees. The maintenance fees are paid by the employer, while the employee then contributes to the account and invests the money. 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 her employer.
• 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.

This section has more in-depth information about the different types of retirement plans, as well as tips on how to create a budget and savings goals so you can live comfortably both in retirement and in the present.

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, based on their lifetime earnings. However, Social Security will rarely be sufficient support on its own.

Retirement plans such as 401ks, individual retirement accounts (IRAs), and traditional defined benefit pensions can be important sources of income. A 401k is a voluntary retirement savings plan sponsored by your employer. These allow you to make direct, pre-tax contributions, often matched by your job, to a retirement account. An IRA is an independent retirement savings account, without matching contributions from you employer. The type of IRA 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 401k or IRA, also have limits on when you can begin withdrawing your funds. You typically can't withdraw from your 401k or IRA before age 59.5, with certain important exceptions. If you do, you'll be hit with a punitive 10% 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 401k 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 and you often must begin withdrawing from your IRA or 401k at 70.5 years old.

Getting Legal Help with Retirement

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