Thought Leadership in Action

Thinking about retirement planning can feel overwhelming, but it’s important to take a measured approach. It’s never too late to start saving, but you’ll need to save in different ways depending on your goals, your timeline and other factors. Asking yourself a few questions as you start saving will help you prepare for the retirement you want.

As you answer these questions, a path should start to become clear for you. “Start with focus to set yourself up for small successes to initiate good habits,” says Laura Redfern, a certified financial planner at Shadowridge Asset Management.

Here are some questions to ask yourself.

1. What Is My Current Financial Situation?

Before you can determine where you want to go, you need to identify where you are, experts say. “One of the most important things people need to know when they are contemplating retirement is a clear picture of where they are financially, right now,” says Bill Kardos, a financial adviser with Mutual of Omaha Investor Services.

This consists of examining your current expenses and income, cash holdings, retirement accounts, and assets and liabilities. This process will help you determine the next steps, including how much to put aside. It’s better to start small versus waiting a year or two to put away more, says Brandon Redman, managing partner at Securian Advisors Northwest in Seattle. Automating some small, early savings will add up quickly.

2. What Are My Goals?

Determining what you want your retirement to look like will help you build your plan to get there. Where and how do you want to live in your retirement? What will you want to do? Establishing goals will help you decide how much to save and how to invest it.

Your goals should include estimating how long your retirement might be. “Employees need to look at their family genetics and personal health in an attempt to gauge life expectancy,” says Greg Knight, a certified financial planner at Engage Advising. “The risk is retiring too early with insufficient funds to cover your expenses, or worse, outliving your nest egg.”

3. How Much Earning Time Do I Have?

While it’s important to think about when you want to retire, Redfern says it’s also important to determine how much time you have at your employer to take advantage of the retirement savings they might offer. This is especially important if you expect to retire from your current employer.

“Could family obligations, such as care for children or parents, require a leave of absence or a change in employment status in the future? How will this affect your employee benefits?” Redfern says. Research your current retirement savings plan to determine whether there’s a vesting schedule in any employer-sponsored retirement fund you have as well, she says.

4. What Income Streams Do I Have?

Answering the above questions can help you calculate how much you might be able to expect from Social Security, pensions and retirement accounts. If you’re almost ready to retire, it can help you determine the rate of return you would need to earn on your available investments to fund your likely retirement years and desired lifestyle, says Ilene Davis, a certified financial planner with Choosing Wealth, a website that helps people make more informed investment choices. If retirement is still some time off, it can help you determine how much you want to have available per year, and how much you need now to finance it.

If your income doesn’t cover your expected expenses, you’ll need to accumulate some savings between now and retirement. This is also a good time to determine your risk tolerance when it comes to investing, Davis says. “If it’s very low, you need to seriously consider getting more knowledgeable about investments, or the amount of wealth needed to finance [your] retirement may be beyond [your] ability to accumulate.”

5. What Am I Doing for Health Insurance?

Experts say health insurance is often overlooked during retirement planning, and that can put a hole in your savings or income down the line. Determining how much your health insurance will cost in retirement is one of the big things you must do when planning, says Lee Pelko, a certified financial planner at Rodgers & Associates, a retirement planning firm.

Answering these questions will help you prepare for the retirement you want. “Many of the decisions you make at retirement are permanent and cannot be undone,” Pelko says. “These are not easy questions but can be answered through careful thought and diligence.”