Every effective retirement plan begins with a clear vision of your future regardless of how murky it may seem. Before we dive into the numbers, we take time to help you imagine your ideal retirement. Do you see yourself traveling the world or enjoying the comforts of home? Are you drawn to a simpler lifestyle or do you picture indulging in luxury? Consider whether you want to remain in your current home or move closer to family and friends. There are no right or wrong answers. Your retirement vision is personal and may evolve over time. Reflecting on these questions now is essential to understanding the true costs of your preferred retirement lifestyle, the resources you’ll need to achieve your goals before and during retirement, and the strategies necessary to build your nest egg.
Once we’ve clarified your goals, the next step is to estimate how much income you’ll need. Start by creating a spending plan based on your current expenses, then we will adjust for inflation, tax implications, anticipated lifestyle changes, and the likelihood of increased expenses for leisure and travel. Think about how your spending habits may shift as you approach retirement. While a customized analysis will provide the most accurate estimate, a general rule is to plan on replacing close to 100% of your current annual income in retirement. We as advisors will assist you in a customized projection, not just assume you will be spending less at retirement.
Equally important is understanding where your retirement income will come from. Most retirees draw from a combination of sources, including Social Security, which provides a small foundation of guaranteed income based on your work history. Medicare is not considered an income source, but it may help cover some healthcare costs. It is important to include out-of-pocket expenses and supplemental insurance in your spending plan. Employee retirement savings plans such as 401(k) and 403(b) accounts allow you to save pre-tax dollars for retirement, while defined benefit plans (traditional pensions) pay a set monthly benefit with no inflation. Defined contribution plans like 401(k)s depend on contributions and investment performance. Personal savings—including IRAs, brokerage accounts, and other investments—also play a critical role. Reviewing all your potential income sources will help you determine whether your projected income aligns with your retirement goals. If there’s a gap, you may need to adjust your savings or spending strategy. Significant lifestyle changes may require you to update your estimates. It is essential to regularly review and refine your retirement plan—especially as your retirement date approaches and beyond.
