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Building a Retirement Game Plan: 4 Steps To Take Now - AOL

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Andrii Zastrozhnov / Getty Images/iStockphotoYou plan to do a lot of relaxing in your golden years, and those leisurely mornings and bucket list trips are the result of careful planning for retirement that starts while you’re still working.Whether you are just beginning your career or want to make up for lost time, now is the perfect time to create a savings plan that will allow you to retire comfortably.Read: The Simple, Effective Way To Fortify Your Retirement MixThere are plenty of rules and guidelines designed to help you set savings goals and calculate how much you can withdraw each year to stretch your retirement funds.Although these guidelines can be helpful, planning for retirement is a personal endeavor and not a one-size-fits-all plan.The first step is understanding the basic steps of retirement planning.Here’s a guide that covers them.What Are the 4 Basic Steps of Retirement Planning?It might be easier to break down retirement planning into a few basic steps. You’ll start by creating a vision of your retirement lifestyle that you can turn to over the years as you build your savings.1.Set Retirement GoalsRetirement planning is important because you want to make sure you have enough resources to fund your lifestyle and cover your expenses after you stop working full-time.To get there, you have a few decisions to make.First, you’ll want to set a target age for retirement.Some people choose to continue working well into their 60s and 70s, especially if they enjoy the work they’re doing.Others prefer to step out of the workforce to travel or spend time with loved ones while they are still in good health.Surprisingly, workers tend to retire earlier than they expected. The results of Gallup’s 2022 Economy and Personal Finance survey revealed that current workers in the U.S.expect to retire at the age of 66, but the actual mean retirement age is 62.If your health — or the health of a loved one declines, you may choose to retire earlier than you planned.Second, you’ll need to think about the kind of lifestyle you want in retirement.Some questions you’ll want to ask yourself include:Will I quit work altogether or work part-time?Where will I live?Do I want to spend a lot of time traveling?Approximately how much will my monthly lifestyle cost?This will build the foundation you need to start planning for retirement because it offers a snapshot of the finances you’ll need to fund your desired lifestyle.You can start receiving Social Security retirement benefits at age 62, but the benefit is reduced for each month before your full retirement age.The month and year you reach your full retirement age is determined by the year you were born — e.g., age 67 for anyone born in 1960 and after. Your retirement age is a significant factor in determining your benefit amounts.Take a look at the retirement calculator from GOBankingRates.You can use it to determine how much you might need to save for retirement.It will use factors such as retirement age, savings and income and other details to figure out the amount.2.Determine How Much Money You’ll NeedA big part of enjoying retirement is having enough money to live the lifestyle you want.Therefore, you’re probably wondering, “What is a good monthly retirement income?”If you plan to maintain your current standard of living in retirement, you’ll need 70% to 90% of your pre-retirement income, according to the U.S. Department of Labor.If you’re currently earning $60,000 per year, you’ll likely need $42,000 to $54,000 per year in retirement — $3,500 to $4,500 per month.Yet, paying for living expenses is one part of your budget.A study by the Center for Retirement Research at Boston College showed that medical costs accounted for as much as 37% of a retiree’s income, and most retirees spend about 12% of their income on medical expenses.If you think Social Security will cover most of this cost, you’re probably mistaken.As of February 2023, the average Social Security benefit is roughly $1,782 per month, according to the Social Security Administration.Considering this equates to just $21,384 per year, it’s not surprising that these benefits only compose about one-third of seniors’ income.To put it in perspective, only 12% of men and 15% of women rely on Social Security for 90% or more of their income, so the importance of having additional sources of income to rely on cannot be emphasized enough.3. Decide What Retirement Savings Accounts You’ll UsePutting money aside in savings is a big part of planning for retirement.There are several different options, including employer-sponsored plans and IRAs.Here’s an overview of a few of the most common types of retirement savings accounts:401(k)An employer-sponsored 401(k) allows you to defer a portion of your income to your retirement plan.Deductions are typically withdrawn from your paycheck automatically, and the amount you put aside is excluded from your taxable income.Employers are also able to contribute to your account, so if your company has an employer match incentive, it’s highly advisable to match it to the highest level.Solo 401(k)If you’re a business owner with no employees, you can open a one-participant 401(k).This plan has the same rules and requirements as all 401(k) plans.403(b)A type of retirement plan offered by public schools and some nonprofit organizations, a 403(b) plan is similar to a 401(k). Employers can contribute to your account, and the portion of your deferred salary isn’t typically subject to federal or state taxes until it’s distributed.If your employer matches contributions to a certain level, it’s wise to take full advantage of this perk.IRAA traditional IRA — individual retirement account — allows you to save for retirement, while reaping tax benefits.Depending on your filing status and income, your contributions may be fully or partially deductible.In most cases, funds in your IRA are not taxed until you take a distribution.Roth IRAA Roth IRA follows the same rules as a traditional IRA, with a few exceptions.For example, you cannot deduct contributions to a Roth IRA. However, if you meet the requirements, qualified distributions are tax-free.SIMPLE IRAIf you have a Savings Incentive Match Plan for Employees, both you and your employer can contribute to your traditional IRA.This is most commonly used as a start-up retirement savings plan by small employers that don’t currently sponsor a retirement plan, according to the IRS.Employers are required to contribute either a matching contribution of up to 3% of your annual compensation or a 2% nonelective contribution for each eligible employee.You are always 100% vested — i.e., own all your money — in a SIMPLE IRA .4.Don’t Touch Your Retirement SavingsWhen checking the balance of your retirement savings, it can be tempting to just let all that money sit there.However, it’s important to never dip into these accounts, unless you’re facing seriously extenuating circumstances.Taking loans and early withdrawals can set your retirement plans back years. It can also be very costly.For example, if your 401(k) plan allows you to take a loan, you’ll be required to repay it — including interest — according to strict terms.If you don’t adhere to these requirements, any unpaid amounts will become a plan distribution.In most cases, you’ll have to include any previously untaxed amount of the distribution in your gross income the year the distribution occurred, and you might also face an additional 10% tax on the amount of the taxable distribution.What Should I Do 5 Years Before Retirement?If you’re planning for retirement in the next five years, you’re probably getting excited for this new chapter.Many of the decisions you make now can have a lasting impact on your retirement lifestyle, which is why this period and the first five years after retirement are known as the fragile decade.You want to make sure you’re taking the right steps now to ensure a smooth financial transition into your golden years.Some actions to take include the following:Maximize all of your retirement accounts if you have the ability to do so.Take a close look at your current budget.Pay down as much debt as possible.Consider purchasing supplemental coverage to assist with medical costs.If you haven’t already, reach out to a fee-only financial planner to make sure your investment plan is on track.Decide exactly where you’ll live and use this to determine your estimated cost of living.Take a closer look at your estimated Social Security monthly benefit.If you don’t already, make sure you have an emergency fund in place, so you don’t have to take extra money out of a taxable retirement fund or get a job if you’re faced with an unexpected major expense.Final TakeIt’s never too early or too late to start planning for retirement. The more time you spend thinking about the kind of life you want and taking steps to prepare for it now, the more likely you are to enjoy your golden years truly.Even if retirement is a long way away, the actions you take today will hugely impact your future.Opening a retirement savings account and contributing a portion of each paycheck might mean you have to sacrifice a bit now, but that’s nothing compared to the amount you’ll have to stretch your budget in retirement without proper savings.More From GOBankingRatesSuze Orman: 3 Things You Must Do If You Receive an InheritanceHow To Get Free Money: 13 Proven Ways3 Things You Must Do When Your Savings Reach $50,000Experts: Here's Why Nearly Every Purchase Should Be On a Credit CardAllison Hache contributed to the reporting for this article.This article originally appeared on GOBankingRates.com: Building a Retirement Game Plan: 4 Steps To Take Now

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