6 Steps to Determine Your Retirement Deadline

Presented by Trevor Kurth, CFP ®

Much of the confusion of retirement planning has to do with folks not understanding that it's more than simply saving. Good planning involves actionable steps to visualize getting from now to the desired tomorrow. Here are six ways to make that idea a specific, detailed plan towards a retirement date you can live with:

Step #1: Set Reasonable Income Goals

We would all love to be millionaires in our retirement, but that’s not reality. A practical, doable retirement plan starts with identifying what one really wants as a livable, enjoyable income in retirement. For some that might be $50,000 a year. For others, it might be $300,000 a year. Whatever the number, spend some time pegging the true cost and spelling out why it should be that number. How you get to the number then defines your retirement date.

Step #2: Determine Where Your Income Will Come From 

Most of us assume our work will be enough and whatever is taken out of our paychecks will pay for our later years. For a few with a defined pension plan, that might still be the case. But for the rest of us, the exact income sources will matter. If more is needed when retired, anticipate then that it will be a mix of retirement savings, Social Security benefits, and potentially still working more. The worst surprise reaching retirement is realizing you don’t have enough and then having to go back to work.

Step #3: Evaluate the Necessary Real Savings

This is where time comes into play. Based on your target goal of income per year, saving early in your life adds more funds for later. With that being said,10 percent of net income (after taxes) is probably fine for someone in their 20s. But if you’re in your 40s, you have less time and need to save more for the same target. Starting with pre-tax savings first could be advantageous if there is an employer-match (free money for you). Post-tax contributions to  a Roth IRA may also be a good option as you know these funds will be tax-free later on. Most IRAs are limited by contribution caps, so talk with your advisor to figure out which combination of 401k/IRA/Roth IRA contributions are best for your situation.

Step #4: Take a Look at Your Health 

If your family history is one with a lot of 100-year-olds, genetics may provide you with a similar situation. If longevity is a possibility, your savings plan needs to anticipate you will need more retirement for a longer time window. If, on the other hand, you’re closer to the average mortality rates, take that into account, too. No one knows for sure how long they have, but with modern medicine, people overall are living much longer - well into their 80's. Your retirement has to account for this fact if you want to live comfortably.

Step #5: Consider Health Insurance Coverage

Many folks peg an age number to retirement and hope everything falls into place, but practical issues often get in the way. The most common issue is health insurance coverage. Folks who retire before they are eligible for Medicare coverage (a required health insurance for seniors from the government) find they are suddenly strapped for medical costs. Then they have to un-retire to afford the medical help needed. If you can’t afford good health insurance in early retirement, don’t retire early, period. The easiest health insurance to have and retain is the employer-provided package while still employed. At age 65, you can then get Medicare. Checking into your health insurance plan for retirement is critical; don't retire too early without factoring in these costs. 

Step #6: Starting Late Is Better Than Not Starting at All 

Believe it or not, starting late for retirement is still a good idea versus no planning at all. Social Security most likely will not be enough, so don’t ever assume it will be your safety net without any planning. If you are just starting in your 50s, you will have a higher climb and have to save more aggressively, but you also gain advantages. After 50 you can put more in tax-deferred or tax-sheltered IRA accounts, protecting more for retirement. You will likely have more discretionary income as your major bills will stop such as mortgage, the kids’ college tuition, loans, etc. Use those funds to save more as well.


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