Retirement Planning 101

Retirement is supposed to be the time to do what you love and reap the benefits of all your hard work. Building a nest egg to ensure you get to do just that takes planning and investing while still in your working years. Though retirement planning can be puzzling, knowing what you want from your retirement and all the available options can make the process easier.

Understand Your Goals

Before you start planning, you need to know your retirement goals. Do you have an idea of when you want to retire? How and where do you want to live after you retire? Maybe you see yourself on a beach or golf course instead of where you are now. If you’ve been pinching pennies your whole career, maybe you want to splurge a little more. These decisions will impact your retirement planning strategy.

Retirement Planning Options

Once you know what you want your retirement to look like, it’s time to start planning. Planning and saving for retirement can be done through a combination of federally sponsored, employer-sponsored or individual programs.

Federally sponsored programs:

Social Security benefits: These are provided by the federal government as a source of income for some retirees. It is generally not advisable to rely on Social Security benefits alone for retirement income because they are designed to replace about 40% of the average working income after retiring¹. In addition, many states have opted not to participate in Social Security for some state workers.

Employer-sponsored programs:

401(k), 403(b) and 457(b) plans: These plans may vary in their flexibility regarding contribution limits, withdrawal timing and possible withdrawal penalties. These plans allow employers to choose to offer matching programs based on what you contribute, or employers may choose to make contributions regardless of what you contribute. Even though these are employer-sponsored, you can withdrawal your account balance if you change jobs or roll the account balance into another qualified retirement savings account. If you take a distribution and do not roll the account balance into another qualified retirement savings account, you may pay withdrawal tax penalties.

Individual retirement programs:

Individual Retirement Accounts (IRAs): The two most common types of IRAs are Traditional and Roth. The key difference between them is deciding when you want the tax benefit: when you contribute (Traditional) or withdraw funds (Roth). These accounts may allow more control, security and stability in your financial future. But the contribution rules and limits are more restrictive than employer-sponsored plans.
Annuities: There are two main types of annuities: fixed and variable. The main difference between them is the amount of risk assumed to achieve your desired rate of return. Variable annuities will carry more risk while fixed annuities typically offer competitive interest rates and limited risk. Annuities offer growth opportunity, fund flexibility and the option for guaranteed lifetime income.

Learn about American Fidelity's retirement services

Building Your Plan

Learning about and exploring different retirement planning options to see which fits you best are necessary steps when creating your plan. Your investment strategy is unique to you and your individual retirement goals.

Keep in mind that a reasonable savings goal and following through with a disciplined savings plan may provide you with a sufficient, or greater, annual income in your retirement years.

The earlier you start contributing to your retirement, the more time your money has to grow. Get started today by calculating your retirement needs

This blog is up to date as of November 2022 and has not been updated for changes in the law, administration or current events.