As you approach retirement your goals—and the resources you'll need to achieve those goals—come into clearer focus. It's now possible to develop a viable plan that can help you make realistic projections about how much you'll have in retirement and what you'll be able to spend. The Ready-2-Retire tool can help you develop a personal plan for how you want to spend your retirement, and also assess your preparedness for the uncertainties that you may face in retirement.
We recommend that you plan on being able to replace between 60% and 80% of your pre-retirement annual income to maintain your lifestyle in retirement. While some of that will come from other sources, like Social Security, most will come from your retirement savings. To help with your planning, we have developed an interactive Retirement Income Calculator to help you determine how much you need to invest annually to accumulate enough assets to reach your goal.
- Investing for Your Retirement Goals
- Choosing a Retirement Date
- Five Things to Think About
- Where to Keep Retirement Assets
- Use an Asset Allocation Strategy to Help Manage Risk
- Phasing Into Retirement
- Employ a Tax-Smart Withdrawal Strategy
T. Rowe Price provides a range of products and services to help you invest for retirement. Review the following options to see which may fit your needs best:
- Both the Traditional IRA and the Roth IRA allow you to save for retirement while deriving tax advantages. If you qualify, you may be able to make tax-deductible contributions to a Traditional IRA, tax-free withdrawals from a Roth IRA, or convert your Traditional IRA to a Roth IRA.
- Rollover IRAs may be appropriate for those who might be changing jobs, retiring, or deciding what to do with money left in a former employer's retirement plan.
Our Retirement Income Calculator can help you decide how much you'll need to save to meet your goals and how long your savings are likely to last.
T. Rowe Price offers Advisory Planning Services to assist those saving for retirement, approaching retirement, or already retired, as well as those just seeking a thorough evaluation of their overall investment portfolio.
This will depend upon how much you have already saved, any other sources of retirement income you may have, your financial goals, and your current work situation.
Review. This is an important decision, so it's best to start with a quick review of your current financial status. To estimate how much money you'll need for retirement, use the Retirement Planning Worksheet. You should also check your estimated Social Security retirement benefit. The Social Security Administration mails you a benefit statement approximately three months before your birthday each year. Visit ssa.gov for more information. If you have a pension plan, ask your employer what your expected benefit will be and when you are eligible to start receiving that benefit.
Financial goals. What are your financial goals for retirement? Your current lifestyle should serve as a pretty good guide. Financial planners suggest that you should expect to spend between 60% and 80% of your pretax income in retirement.
Work consideration. More than ever, people are considering working longer, phasing into retirement gradually, or exploring part-time employment. Continuing to work may be a good option if you find you have not saved enough to retire when you had originally planned or you are concerned that even though you have saved diligently, you may not have enough of a financial cushion accumulated. We have two approaches for you to consider that will enable you to increase the income you have in retirement.
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Delay Retirement
The traditional remedy has been to delay your retirement for a few years while you continue to contribute to your retirement savings, increasing the size of your annual contributions as much as you can. This strategy is likely to increase the balance of your retirement nest egg, so that by the time you do fully retire, the amount you can withdraw from the portfolio without a high likelihood of running out of money will be more.
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Practice Retirement®
This new, potentially more enjoyable T. Rowe Price approach enables you to start "playing" while you continue working during your 60's—testing out some of your retirement dreams while you still have a financial cushion in the form of a salary and benefits. You begin spending at least some of your salary on all the fun projects you had envisioned for this time in your life rather than waiting to do so until you are fully retired. There are several important benefits that can be gained from the extra years of working and playing at the same time. First and foremost, delaying retirement will provide more time for your retirement nest egg to continue compounding, tax-deferred, and secondly it will shorten the time your nest egg must support needed withdrawals in retirement. Because you are still on salary, this strategy also means that you can wait longer to start taking your initial Social Security benefits, which increase approximately 8% each year, plus annual adjustments for inflation.
Explore some of the Practice Retirement® tools and resources to determine if easing into the retirement lifestyle—both emotionally and financially—may be right for you.
As you approach retirement, here are some important things to consider:
- The potential length of your retirement
- How inflation can impact your savings
- The need for cash reserves
- How your investment focus and style may change
- Getting help from financial experts
An IRA can be one of the most effective ways to save for retirement. The combination of tax benefits and tax-deferred earnings can help to boost your retirement savings. You can add to your Traditional IRA for any year that you have earned income until the year you turn age 70½, at which point you must start taking required minimum distributions.
The best way to manage risk is through diversification. Remember, different asset classes offer varying potential for growth—and different levels of risk. For instance, stock funds, while offering the greatest potential for long-term growth, also tend to undergo the greatest short-term price fluctuations. Conversely, short-term investments, such as money market funds, tend to offer relatively low returns but greater price stability.
One way to pursue growth while reducing overall risk is to spread your savings among investments with different levels and types of risk and return potential. In other words, don't put all your eggs in one basket. You can diversify by spreading your savings among stocks, bonds, and money market/stable value investments, or you can invest in a variety of different investments in one category, such as large company stocks and small company stocks or investment-grade bonds and high-yield bonds. Of course, diversification cannot assure a profit or protect against loss in a declining market.
A phased retirement offers the opportunity to work part time or on a flexible schedule, rather than retiring entirely from your job or career. This strategy may allow you to make additional contributions to your plan or put off the time you begin making withdrawals. It might even lead to a new career.
- Consult with your employer. If you're interested in making a subtle change, find out if your current employer does, or will, offer a phased retirement program. Companies eager to retain the expertise of long time workers have been increasingly flexible in transitioning the workloads of their older employees. Even if your company has no formal phased retirement plan, it might be willing to work out such an arrangement on a case-by-case basis.
- Adjust your lifestyle to your income. Consider the required annual salary needed to accommodate your phased lifestyle. If full-time employment meets your needs, you'll have the advantage of nonmonetary benefits, such as health insurance. Part-time work, on the other hand, offers added flexibility but could impact your lifestyle, job position, or employer benefits.
- Explore when to claim your Social Security benefits. Choosing when to claim your Social Security benefit is one of the most important decisions you will make about your retirement. Do you want to claim your benefit as soon as possible, or get the maximum benefit possible? If married, what do you plan for the surviving spouse? Your choice will affect how much you receive from Social Security throughout your retirement.
Our Social Security Benefits Evaluator lets you compare your options and gives you a personalized, step-by-step strategy for taking your benefit.
When it comes to helping your retirement savings last as long as possible, your withdrawal strategy is just as important as the strategy you used to save. Generally, allowing tax-deferred investments to grow as long as possible is smart. Consider withdrawing from taxable accounts (mutual funds and individual securities) first. Although you may need to pay capital gains tax, typically the rate for this tax is more favorable than the ordinary income tax rate.
Next, tap into tax-deferred savings such as Traditional and Rollover IRAs. Use assets from a Roth IRA last, particularly if you hope to pass assets along to heirs. Although distributions are potentially tax-free, the Roth IRA offers some significant estate planning benefits.
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