How to Plan for Retirement

Video Transcript

Sarah Weston
How often have you heard it? 60 is the new 40. Take a look around. People are living lives they never dreamed of. But did you know that six in ten Americans don't know how much money they'll need to retire? Hi, I'm Sarah Weston, host of Road Map for the Future, brought to you by Western and Southern Life. So why is retirement such a hot topic?

We asked the President and Chief Marketing Officer W&S Agency Group Troy Brody to offer his insights. So, Troy, how did we end up this way?

Troy Brodie
Well, Sarah, it didn't happen overnight. It definitely took time. Really? Something in the order of a generation or more. And really, there is more than one answer to your question.

Sarah Weston
Okay, let's get started.

Troy Brodie
Okay. Let's start with employment and benefits. Generations ago, people worked hard and then when they retired, they had access to a pension. Right. That companies are going to take care of me. And today, for the most part, pension tables are gone away completely, or they've been replaced by defined contribution plans, like for 401k’s or 403B's.

And I will say that's what's really cool about our value proposition at Western. Southern is we still offer our associates both a pension and a defined contribution program in the form of 401k. But we really are the exception to the rule. And when you think about the companies out there in the Fortune 500, Western, Southern is one of only 16 that's offering people a pension plan.

Sarah Weston
Really?

Troy Brodie
So from the employment standpoint, many Americans just aren't getting the same retirement benefits that got a generation or two ago.

Sarah Weston
So we have benefits, concerns. Let's talk about personal savings. I guess the inverse would be spending, right?

Troy Brodie
Yeah, that's right. And what you're alluding to is what the experts would call lifestyle creep. You know, we all see these images on social media and in you know, on TV, people living in mansions and driving sports cars and wearing designer clothes. And so to a degree, we all try to emulate the things that we see. And all too often people do so at the expense of their retirement savings.

And what happens is this debt starts to accumulate.

Sarah Weston
Yeah.

Troy Brodie
And what you don't realize is that these images that we see and that we're trying to emulate really aren't real. And it's only natural for a younger generation of people to not even think about retirement because they're thinking about today instant gratification. What I want to do today or tomorrow. And they often make purchases that are instant but temporary. And where if they miss out on all the years of compounding, that could contribute towards a comfortable retirement. So there are scary stats out there. You hear things that two thirds of Americans have saved little or nothing towards retirement.

Sarah Weston
Gosh, that is concerning. So what else?

Troy Brodie
Well, when when you look at my generation, for example, whether Social Security or Medicare or other government programs, people used to be able to rely on not only their company, but also the government to take care of them in retirement in the form of Social Security. And a lot of that's just not there anymore or it's diminished in its capacity or even threatened.

So really, this three legged stool that people hear a lot about of retirement, one of those legs that's holding up that retirement is the government leg or the Social Security leg. And that used to bear a lot of the weight. And with employer programs and personal savings being the other two legs and today, we're moving towards a world where your personal savings is going to have to acquire and sustain a substantial amount of that way.

Sarah Weston
So our retirement stool is changing and I imagine the economy plays a role, too.

Troy Brodie
Absolutely. No discussion on retirement would be complete without addressing the economic landscape because it changes right over time. And for a lot of people, if you think back to the economic recession of 2008, that could have wiped out what little retirement savings that people had. And these people have had a tough time recovering ever since.

Sarah Weston
Okay, is there a way out?

Troy Brodie
In my opinion, there is with a little bit of the right guidance, a situation that a lot of people find themselves in can at the very least be positively affected and in many cases turned around. I just think too many people think the situation is hopeless. They think there's no way I can save enough for retirement. And that is definitely not the case.

But you've got to start you've got to start saving as early as you possibly can. And if you're earning a living and you're making a paycheck, you are not too young to think about retirement. And if you haven't even started saving, the time to start is now.

Sarah Weston
So the good news is you probably can get back on track.

Troy Brodie
You sure can. The first thing is making the decision, right? Once you make the decision to take action, you've got to find a partner, right? A financial professional who will really take the time to listen to your wants and your concern. Hear what you're saying and what the well-constructed retirement plan in place along with regular updates and reviews.

You have a really good chance to get back on track and to stay there. So talk to someone you know, people you respect and know that Western Southern has offices nationwide and our financial professionals would welcome the opportunity to sit down and hear what's on your mind and help you create a personalized road map to retirement.

Sarah Weston
Roadmap to retirement. That sounds like good news to me. Troy, thank you so much for your time.

Troy Brodie
Thank you.

For many people, the topic of retirement is often somewhere in the back of their minds. When you're young, it's something you know you'll probably have to think about at some point. If you're older and nearing the end of your career, getting ready for retirement is a real priority.

Regardless of where you are in life, understanding how to plan for retirement is important. Focusing on your planning options and strategy now, even if retirement's decades into the future, can help ensure you have enough saved for living comfortably during your golden years.

Here's why retirement planning is important, how to begin doing so and some considerations for every stage of life.

Set Retirement Goals

Saving for retirement is usually a decades-long process. It can be hard to know how well you're doing. That's why it's important to set clear goals for yourself and monitor your progress along the way.

For example, it can be helpful to create savings targets based on your pre-retirement income. Common guidance suggests saving an amount equal to your yearly salary by the time you reach age 30, and three times your salary by age 40. The guideline further proposes savings of six times your salary by age 50 and eight times your annual income by 60. To reach those objectives, you may want to start saving roughly 15% of your income while still in your 20s.

While broad rules such as this may apply to a typical adult, they won't work for every individual. An early retirement or extensive travel plans, for instance, may require you to increase those amounts. Conversely, moving to a more affordable part of the country or having non-investment assets to draw from could help enable you to retire comfortably with a lower savings target. The key is to identify goals that apply to your unique situation and periodically measure your progress.

Start Preparing for Retirement Early

Reaching your retirement goals becomes considerably easier when you start saving at a young age. You're able to spread out your contributions over a longer period of time, putting less strain on your budget as you reach your later working years. If you are not ready to take a full retirement soon, you might be able to take a mini-retirement. 

By saving earlier, you also take advantage of compound returns. Any capital gains, interest or dividends you receive in an individual retirement account (IRA) or 401(k) help build your balance, creating a snowball effect. Make time your ally as you work to build your retirement resources.

Find the Retirement Strategy that Seems Right for You

What are some good ways to build your account balance and better allocate your assets? Often, making a couple of small changes to your money habits can dramatically improve your readiness.

Our list of retirement strategies includes several time-tested ways to help stay on track. Read on to learn more about budgeting, increasing your tax-advantaged contributions and developing an income plan once you leave the workforce.

Understand Your Retirement Plan Options

One of the best ways to get more out of your contributions is by choosing an investment vehicle that reduces the impact of taxes. Different retirement plans have pros and cons that are important to understand when saving for your later years.

If you're relatively new to retirement investing or recently started your own business, getting acquainted with these options will help you make better informed choices.

Employer-Sponsored Retirement Plans

If your employer offers a 401(k) or similar retirement plan, contributing through these accounts can offer important benefits. For example, many organizations provide matching funds that can help accelerate your account balance. Plus, you can generally make pretax contributions to traditional retirement plans, up to allowable limits.

IRAs

IRAs have perks of their own, including a greater number of investment options than many employer-based plans. These accounts have a separate contribution limit from workplace plans, so using both in tandem can help you maximize the amount of your tax-advantaged contributions.

Retirement Plans for Small Business Owners

The contribution limit for most IRAs is smaller than that of employer-sponsored plans. However, small business owners may be eligible to set up Savings Incentive Match Plan for Employees (SIMPLE) IRAs or Simplified Employee Pension (SEP) IRAs, which increase that cap. These two retirement planning tools have some important differences, however, so consider how each addresses your needs.

Select Your Retirement Investments

Often, the number of investment choices available to you can seem overwhelming. Depending on your retirement plan, you may also need to decide whether a traditional or Roth account provides the bigger tax benefit.

Having a basic understanding of different investment products and account types can make it easier to select from among them. Use our easy-to-follow guide as your first step toward a better informed investment strategy.

Know Important Retirement Milestones

Do you know when can you start receiving Social Security benefits or start withdrawing retirement funds without a penalty? Retirement planning involves various age-related milestones that are important to know. The more you understand about these key markers along your journey, the easier it is to create a strategy that makes sense for you.

   Align your retirement plan with important age-based milestones to stay on track. Start Your Free Plan  

Estimate Your Retirement Expenses

How do you know whether you'll have enough money for your planned retirement? To answer that important question, you may want to estimate what your costs may be when you leave your full-time job.

Whether you use a worksheet or an online tool such as our Retirement Cost of Living Calculator , there's no substitute for itemizing your various expenses. You may want to include the following important categories:

Housing

Housing is the largest single expense for those over age 65, according to the Bureau of Labor Statistics.¹ However, you may be able to significantly reduce your housing expenses by downsizing or even renting out a portion of your residence. If you own your home, you might also consider paying down your mortgage before you reach retirement to make your future budget more sustainable.

Food

A typical older adult will spend $9,985 each year, according to government data.¹ Your household may spend more or less than that, depending on where you shop and how often you dine out. To estimate your retirement food budget, look at the total amount you currently spend and make adjustments based on anticipated changes in your lifestyle.

Transportation

For many retirees, transportation costs can fall considerably since you no longer have a daily commute. That may not be the case, though, if you plan to spend much of your retirement visiting family and friends — especially if seeing them requires air travel.

Health Care

Medical expenses represent one of the biggest costs for older adults. That means having a reasonable projection of your health care expenditures is a vital part of any retirement plan. Among the factors you may want to consider are:

• Your current health status
• Your age at retirement
• Whether you'll be eligible for Medicare when you retire
• Your choice of Medicare plans

Are You Ready to Retire?

Retirement should begin when your finances allow you to live comfortably without needing to work. This means the opportunity to do the things you truly love, whether that's traveling the globe or simply tending your garden. But to make your dream retirement a reality, you have to make sure your assets last. 

For example, do you have a good idea of what your expenses may be? Or how much you can expect to get from Social Security? These are critical questions to ask yourself as you consider this important step

Retirement Terms to Know

Much of the time, retirement planning can feel like a maze of financial jargon. However, preparing yourself for life after full-time work needn't be confusing.

Our glossary helps explain some of the most common important — and often misunderstood — retirement terms to help you make sense of your choices. The more you understand these basic concepts, the less stressful it becomes to chart your future course.

Additional Retirement Planning Resources

Retirement planning shouldn't be confusing. That's why we offer an array of straightforward content to help steer you on your path.

From a checklist to help make sure you have all your bases covered to our planning guide specifically for women, these resources can give you added confidence that you'll be financially ready for the next stage in life:

• Retirement Checklist
• Retirement Myths
• Retirement Planning for Women

Staying Focused on Your Golden Years

Between work, family and other obligations, life has a way of getting busy. But no matter how much you have on your plate today, taking the time to think about your future needs is also vital.

Focusing on your retirement strategy now, even if it's decades down the road, can help ensure you have enough saved to live comfortably during your golden years. If you could benefit from a helping hand, consider reaching out to a financial professional who can help you better understand your retirement plan options and develop stronger saving habits.

   Prepare for a fulfilling retirement by choosing the best plan and investments. Start Your Free Plan  

Sources

1. CONSUMER EXPENDITURES--2023. https://www.bls.gov/news.release/cesan.nr0.htm.
2. Starting your retirement benefits early. https://www.ssa.gov/benefits/retirement/planner/agereduction.html.
3. What is the Social Security break-even age? https://www.aarp.org/retirement/social-security/questions-answers/retirement-benefit-break-even-age.html.
4. 2024 Milliman Retiree Health Cost Index. https://www.milliman.com/en/insight/retiree-health-cost-index-2024.