This fictional story is just one example of how you could reach your retirement goals. Everyone is different and there's no one-size-fits-all approach to saving for retirement. Consider working with a financial representative to find the retirement planning strategy that's right for you. The information in this article is intended for illustrative purposes only.
Kathryn has worked hard to establish financial security for herself and her family.
For 35 years, she's worked for the same company, rising up the ranks from a part-time visual merchandiser to chief merchandising officer.
As her career has progressed, Kathryn and her husband, Ed, have diligently saved and prepared for retirement. Now, at 60, Kathryn is ready to celebrate a milestone achievement — retirement.
Here's how she reached her retirement goals and some potential ideas for how you can, too.
Setting a Retirement Vision
When it came to creating a strategy for her retirement preparations, Kathryn focused on what she actually wanted retirement to look like.
Understanding what she wanted — like a second home in North Carolina, which she and her husband could use to escape the harsh Minnesota winters — helped her develop a more realistic idea of what it would actually cost and how much they needed to save to make it happen.
Kathryn made contributing to her 401(k) a top priority. She took advantage of a benefit offered by many employers, including hers: a company match. Contributing to her employer-sponsored retirement plan allowed Kathryn to accelerate her retirement savings because for every dollar she contributed up to a certain limit, her employer also chipped in. She also was able to reap tax advantages because the money in her 401(k) was able to grow tax-free throughout all her working years.
Taking Advantage of Catch-Up Contributions
Even if you're less than a decade away from retirement, you can boost your retirement savings. One way to do this is through "catch-up" contributions.
Along with her 401(k), Kathryn also had a Roth individual retirement account (IRA) that she made catch-up contributions to. If you're age 50 or older, you can contribute an additional $1,000 to your retirement accounts, according to the IRS.
That amount may seem small, but it helped Kathryn in the last decade of her career and played a big role in how she reached her retirement goal.
Kathryn planned to officially retire when she turned 60, in part so that she could start accessing the money she had saved in her 401(k) without any penalty. (You may be required to pay a 10% early distribution penalty if you make a withdrawal before age 59 1/2).
Another part of Kathryn's retirement strategy was to wait to file for Social Security. Because she and Ed were diligent savers, they wanted to keep saving for retirement until at least age 65. Waiting also meant they would get a bigger benefit, giving them additional money to fund their lifestyle in retirement.
Kathryn and her husband are planners by nature, but they're not financial experts. To make sure they were on the right track, they sought additional help to manage their money.
Money management is a full-time job in itself. Neither Kathryn nor her husband — who both had time-consuming, high-powered executive jobs— had enough time to assume this role and constantly mull over every retirement consideration.
That's why they chose to work with a financial professional, and kept the same one for years. Their financial representative helped Kathryn and Ed make complicated decisions by presenting all of their options and clearly explaining each of them. They leaned on her guidance and advice at critical points, and relied on several informational resources, like online research, to make their retirement goals possible.
Kathryn and her husband didn't want to rely on their 401(k) and Roth IRA accounts alone to fund their retirement lifestyle. Like many people, one of their most nagging questions upon retiring was "will we have enough?"
They wanted to help ensure they didn't run out of money, so Kathryn and her husband sought strategies beyond their retirement accounts. Working with their financial representative, they set up an annuity, which can provide a guaranteed stream of income in retirement. They also explored several life insurance options and bought a whole life insurance policy in order to give their grown children a little extra support when they're no longer around.
Establishing a Long-Term Retirement Strategy
That's how Kathryn reached her retirement goal.
Although she's now retired, Kathryn knows the work doesn't just stop. She and Ed have some additional things to consider as they begin enjoying this next phase of their life.
Kathryn now has more time to spend with family — including her children and grandchildren — but she still worries about having income in retirement and what her kids would do if something were to happen to her or Ed. That's why she's doing some planning as part of her long-term retirement strategy. Kathryn plans to rely on her annuity as guaranteed income in retirement and her whole life insurance policy to help her kids financially if the unexpected were to happen.
But Kathryn and Ed have also talked about their options should they need to generate more income. Kathryn can put her expertise to work by consulting a few hours a week with her old coworkers, who have expressed interest in partnering on some projects. Ed also loves woodworking as a hobby and has seriously considered launching a small shop both for fun and to earn a little extra cash.
Kathryn has developed a retirement plan with income from diverse sources, including the investments and financial products she's leveraged along the way. She's looking forward to exploring this next chapter in her life, and sharing her experience reaching her retirement goals in the hopes it will encourage others to save, plan and achieve the kind of retirement she and Ed have always dreamed of.