5 Retirement Planning Questions Answered

When and how you start retirement planning can determine your future financial security. We’d like to help you understand what you’ll need, what type of investment account to open and why a diverse retirement portfolio is important. Then, you can create a retirement plan that works best for you. We’ve pulled together answers to 5 common questions members ask us about retirement planning.

Retirement savings are important, but I have multiple savings needs. Where should I focus my attention? 

Consider focusing on 3 areas:  

1. Retirement. Do you have a retirement match through an employer-sponsored retirement plan? If so, try to take full advantage of it. If you aren’t sure, ask your employer about any retirement investment options available.
2. Emergency Savings. Do you have an emergency savings fund? If not, start one with a small goal—perhaps $500—then build from there. Next, consider working toward saving 10-15% of your annual salary. That's separate from your retirement savings. Remember—your emergency savings are meant to be spent when you need them; retirement funds are meant to stay untouched for a long time. (Try our emergency savings calculator.) 
3. High-Interest Debt. Do you have high-interest debt? Paying it off before contributing any more to retirement could be better in the long run. Depending on the interest rate, you may earn more on your money by paying less interest than you would in the stock market.

When should I start putting money aside for retirement?

As soon as you can! The more time your money has to grow, the better.

If you don’t have an employer-sponsored retirement plan, you could start an Individual Retirement Account (IRA) on your own. Check out the types of IRAs available to you and choose one that will best meet your needs. If you have a spouse, remember that as a couple, you can have multiple IRAs. Money you contribute to these investment accounts may be deductible on income tax returns.

What’s an IRA?

An IRA is a tax-advantaged investment account that allows you to save for retirement. There are 2 main types of IRAs. Here’s a simple explanation of how they and their tax advantages differ.

Traditional IRA: Contribute money that you may be able to deduct from income taxes. Any earnings can potentially grow tax-deferred until you withdraw them at retirement. 

Roth IRA: Contribute funds on which you’ve already paid income tax. That money can then potentially grow tax-free. In retirement, withdraw it tax-free, if you meet certain requirements. 

If you’re self-employed, you can also consider a Self-Employed Pension IRA (SEP IRA). It allows you to save in a retirement plan for yourself or for employees.

How much should I save for retirement?

The amount varies from person to person. It often factors in income from social security, retirement savings, other investments and any annuities you might have. 

A good goal may be to plan to live on 70-80% of pre-retirement income. For instance, if your salary is $80,000 a year before retirement, you may need $56,000 to $64,000 a year for your nest egg. Think about housing needs, tax rates where you plan to retire and health care costs, too. 

What’s asset allocation, and why is it important?

In a nutshell, asset allocation is a strategy to protect retirement money against volatility, or sudden changes in the stock market. It’s a way to balance risk by spreading money among different types of investment options, such as stocks, bonds and cash. Some overall retirement portfolios even include asset classes such as real estate. A mix of asset classes, called diversification, can help offset a downturn in your retirement portfolio.