Seven steps to retirement planning


A recent TIAA Institute survey reported that 50% of Americans were unable to answer financial literacy questions properly.  While I presume you are not in that group if you are reading this article, here are some highlights to share with your friends.

  1. Have a written plan of your current and expected income and expenses. The plan should use words that you use to describe your lifestyle.  It can be as detailed as you are comfortable making it; but do not get so detailed you will not maintain it.
  2. Inflation is not consistent; but it is constant. Plan on spending 3% more overall each year in retirement.
  3. Evaluate when to take Social Security. The longer you wait, the more money you get each month.  However, you need to consider your family’s health history and your expected length of life.  If your family has a history of death in their early to mid-70s; waiting longer to take Social Security benefits may not be smart.
  4. Did you know Social Security is only meant to provide about 33% of your expected retirement income?
  5. Evaluate when to take pre-tax retirement and post-tax retirement. Estimate where your taxable income will be each year in retirement and consider taking out money to move towards the top of your current tax bracket without moving to the next tax bracket.
  6. Depending on your other types of income; up to 85% of your Social Security benefits could be taxable.
  7. Evaluate a Roth conversion. If you think tax brackets will increase in the future, consider converting retirement funds into a Roth IRA and paying taxes today.  The investment will grow income tax free after it has been in your Roth account for at least 5 years.

Education is key.  Consult with your financial and tax advisers.  This is your retirement plan, and you should feel like you have every resource available to make informed decisions.