Retirement Planning Tips
Created by FindLaw's team of legal writers and editors | Last reviewed June 20, 2016
Planning for retirement is the best way to ensure that you can live comfortably during your golden years. Although people have become less reliant on pension plans provided by employers, there are other ways to save for retirement. Here are tips on how to plan for retirement.
Tips for Planning for Retirement
- Decide what age to retire. Determining what age to retire will help establish the amount of money needed to retire. Retiring at a younger age will require more savings, while delaying retirement will result in more savings toward retirement and may increase Social Security benefits.
- Decide how you want to live. Everyone has different plans for retirement. Decide how you will spend your time. Will you become involved in volunteer work, will you devote your time to hobbies, or will you work part-time. Working part-time during retirement will decrease the amount of money withdrawn from savings.
- Calculate how much money you will need for retirement. One of the most important retirement tips is to save enough money. A worker should save 15% of their income toward retirement or should anticipate needing 80% of their annual pre-retirement income to live comfortably.
Tips for Saving for Retirement
- Contribute to a 401k plan. A 401k plan is a retirement savings plan provided by an employer. The benefits of a 401k plan include:
- Less tax liability: Because contributions are taken before taxes, it reduces taxable income.
- Tax-deferred growth: The earnings are not subject to tax until withdrawn from the account.
- Employer matching: Many employers will match an employee's contribution up to a certain limit.
The maximum contribution limit for 2010 is $16,500 and $22,000 for employees age 50 and older. Withdrawing the money early will incur a 10% penalty in addition to income tax liability. Once 70 1/2 years old, the recipient must withdraw at least the minimum distribution amount required by the IRS.
- Open an IRA account. A traditional IRA is beneficial to those not eligible for an employer-sponsored retirement plan. Like a 401k plan, an IRA also offers the advantage of tax-deferred growth. If qualified, contributions made to an IRA are tax deductible. In 2010, an individual age 49 and under can contribute up to $5,000 or up to $6,000 if age 50 or above. The IRS permits only contributions from earned income. Like a 401k plan, the IRS requires mandatory withdraws at age 70 1/2.
- Open a Roth IRA. Unlike a traditional IRA, contributions to a Roth IRA are not eligible for a tax deduction. However, the primary advantage of a Roth IRA is that withdrawals made during retirement are tax-free. Like the traditional IRA, contribution limits apply and only contributions from earned income are eligible. To qualify for a Roth IRA, the individual must meet income limitations. The following income limits apply in 2010: $120,000 for single individuals and $176,000 for married people filing jointly. A Roth IRA is not subject to mandatory distributions.
Retirement Tips for Collecting Social Security
- Calculate how much you will receive in Social Security benefits. Social Security benefits are based on the amount a person earns over their lifetime and a person's retirement age. The Social Security Administration (SSA) sends an annual estimated benefits statement to individuals age 25 and over who do not already receive Social Security benefits. A benefits calculator is also available online on the SSA website.
- Decide when to collect Social Security benefits. Eligible individuals may begin receiving Social Security benefits between ages 62 and 70. Retiring early at 62, however, will reduce benefits. The amount of the reduction depends on your full retirement age.
- Decide whether to delay collecting Social Security benefits. Delaying retirement beyond your retirement age will increase Social Security benefits by a certain percentage. Once the retiree reaches age 70, however, the benefits no longer increase.
Planning for retirement can be a complicated and overwhelming process. If you would like help in navigating the laws related to retirement planning, it's in your best interests to consult with a Social Security and retirement attorney.
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