Four Steps to Planning for Retirement

Four Steps to Planning for Retirement

People today are living longer retirement lives than ever before, which means the need to plan for your retirement early – and revisit that plan often – is even more important. During this process, one of most frequent questions I receive from my clients is, “How much do I need to retire?” While this seems like the natural question to ask, I like to take a different approach. My answer is always a question in return: “What will your retirement expenses be?”

When you’re setting any budget, it’s important to understand the types of expenses you have, whether they will be incurred one time or ongoing, and how these costs fit in with your goals. And, understanding how much you may expect to spend is a great starting point for determining how much you need to save.

If this seems like a daunting approach, don’t worry. Here’s a look at how I break down and walk my clients through this question.

  • Step 1: Identify your sources of income. Consider the sources of income you can reasonably expect and rely on after you’ve retired. Social Security may be one source, as well as your 401(k) or investments. What about property or farmland? Are you planning to work a part time job or retire completely? Make a list of all your sources, and see what these, combined, add up to each month.
  • Step 2: Estimate your expenses. No matter your point in life, including retirement, there are always expenses you know you will incur each month. These expenses can include your mortgage or rent, any auto or loan payments, and your regular living expenses, such as groceries and utilities.
  • Step 3: Outline your retirement goals. Everyone has a different picture of what “retirement” will be like for them. For some, it’s their opportunity to engage in hobbies or activities they couldn’t devote time or resources to before. Consider what’s important to you in retirement. Will it be traveling to Europe once a year? Traveling across the country regularly to see your kids and grandkids? Understanding your goals helps you determine how much to put aside or budget so you can achieve them.
  • Step 4: Determine what your existing portfolio can generate. This is where saving up, even a little bit, every year starts to pay off. Typically, you can draw four to six percent annually from your investment portfolio, and sustain that amount over a long period of time. Your chances of running out of that money increase significantly if you start regularly withdrawing more than six percent. This, of course, depends on your risk tolerance and other factors regarding how you’ve managed your portfolio.

Once you’ve completed each of these four steps, you can start finding the answer to the “How much do I need to save” question. In fact, this exercise may help you answer other questions as well, such as when and where you want to retire.

Note: Non-Deposit Investment Services are not insured by FDIC or any government agency and are not bank guaranteed. They are not deposits and may lose value.

Jason Egge

Jason Egge

VP, Financial Services Manager (515) 245-2892 Email Jason

Jason Egge joined Bankers Trust in 2004 and has nearly 25 years of experience in the financial services industry. Jason partners with his clients to develop retirement strategies based on thoughtful consideration of their individual needs. He follows through with them, encouraging customers to meet regularly in a comfortable environment to review each unique portfolio, ensuring that their investments meet their changing life needs. Presently, customers have collectively invested more than $90 million through Jason. Their assets include stocks, corporate bonds, municipal bonds, government bonds, mutual funds, ETFs (Exchange Traded Funds), REITs (Real Estate Investment Trusts) and annuities.

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