The First Steps to Thinking About Your Retirement
May 22, 2023
The First Steps to Thinking About Your Retirement

Many people, regardless of age, tend to procrastinate when thinking about retirement. For young people, retirement seems far in the future. However, it is an important life event that requires much thought and thorough planning. The sooner you begin planning for your future, the better.


As a young professional, the first steps to thinking about your retirement should involve considering what you want your future to look like and what amount of funds it will be required to make this vision a reality. Consulting your accountant will prove helpful in these steps, but this article will address the basic steps and some frequently asked questions to get you started before you meet with your accountant.  


Retirement planning is a process and the sooner it starts, the better.  But don’t think it ends when you are done working.  Life happens – your income declines in a market downturn, unanticipated expenses arise – any number of reasons may require you to make changes to your spending in your retirement years.  There is great value in having a trusted financial advisor when you need to rethink and adjust at major events along the way.  The relationship you can begin building with your accountant now can guide you through your career to retirement.  


Determine Your Goals


One of the first steps to thinking about your retirement is to establish your goals. 


Do you want to live a nomad lifestyle? 

Do you want to spend your days doting on your grandchildren? 

Will your days be filled with golf, volunteering, or running marathons? 


Whatever you envision for your future after you have officially bid adieu to the 9-to-5 life, be as specific as possible. Your plans will change over time, but having a foundation to start with is key to planning your retirement.

The amount of money that you need to retire is directly correlated to the type of retirement lifestyle that you would like to have. If you would like to have a lavish retirement, you will need more funds. If you would like to have a simpler life, you may need less money. If you are uncertain how to make these calculations, working with an accountant can be quite beneficial in this first step in considering your future plans.


Determine When You Would Like to Retire


Despite popular theory, there is no set age at which you must retire. Currently, the age to receive full retirement benefits for Social Security is 67, but everyone has the option to retire earlier or later.  You can even continue working in retirement, but you must begin taking Social Security at age 70. 


After defining your ideal retirement, assess how much it will cost to cover to live the way you want.  Estimate how much your monthly and yearly expenses will be. Be as detailed as you can be. Keep in mind that for many people spending in retirement actually increases; there is newfound time to travel, take on new hobbies or seriously work on your golf game.


Estimate How Long Your Retirement May Be


How much you will need to fund your ideal retirement depends in part on how long that stage of your life will be. Retirement specialists refer to your working years as the “accumulation phase”. For most people that period comes to an end around age 65.  The length of the “distribution phase” or the time that comes after you stop working is much more variable. 


How long that distribution phase lasts depends on your lifespan.  In order to plan for the distribution phase of your life you need to get an idea of your anticipated life expectancy.  There are many factors that are considered in calculating life expectancy.  Can it be done with reliability? If the statistical sample is large, then the answer is yes. That’s how life insurance companies stay in business!  


There are many online calculators that can provide you with your anticipated life expectancy.  This version at Calcuworld provides both a typical life expectancy based just on your age and gender as well as an expected value based on your answers to questions regarding your health, family history, job satisfaction and stress, marital status and other factors. A significant difference between those two numbers may suggest that you should plan on a significantly longer distribution phase than the average US lifespan of 79.11 years.  


Saving For Retirement


When planning for your retirement, there are multiple ways to save.  Most employers offer defined contribution plans like a 401k or a 403b, with traditional (pre-tax) or Roth (after-tax) contribution options. If you are an independent contractor or small business owner you might choose a solo 401k, SEP or SIMPLE plan.


If saving in an employer’s plan is not an option for you, there is always an Individual Retirement Account (IRA). Like 401k plans you can choose to make traditional or Roth contributions. The amount you can put aside in IRAs is much smaller than employer-sponsored plans however, so you will need to get creative. 


Health Savings Accounts (HSAs) are a valuable way to put aside pre-tax funds for retirement. Unlike your IRA savings, funds in your HSA can’t be withdrawn for anything other than healthcare-related purposes. But if you limit your distributions while making regular contributions during your working years you could have quite a nest egg for funding medical expenses in your retirement.  And both your contributions to an HSA and the income your contributions earn can be withdrawn tax-free! 


Investing for Retirement


Social Security is a significant source of income for retirement and actually an annuity you have invested in over the course of your working life. As important as is, your ideal retirement will likely require other sources of income besides your monthly Social Security check. 


Some people look towards their real estate investments as a major source of income in retirement.  Funds could come from income-producing rental properties or downsizing from a large family home. 


For many people, a mix of taxable investments, tax-deferred income like traditional IRAs and 401ks and tax-advantaged funds like Roth IRAs make their retirement plans achievable. What part each of these will play in your retirement, and the order and amount you should draw down your resources are crucial questions that your financial advisor and accountant can answer. Together, you can make the decisions that will best help you realize your retirement plans. 


The Time to Start Thinking About Retirement is Now


Saving and thinking about retirement may seem premature or even unnecessary to a young professional. However, a serious approach to saving and the miracle of compounding will make a huge difference for your future retirement.  Working with an accountant can make this an easier process. To achieve the lifestyle that you have always wished for in retirement, the time to get started is now.



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