The Retirement Corporation of America

How to Draw a Retirement Planning Time Line

When it comes to planning for retirement, there's a familiar phrase that says it all: Better late than never—but better never late. It's never too late to begin your planning for retirement, but the earlier you begin, the better off you're going to be. In fact, the ideal kick-off date for starting your retirement planning is the day you start your first job. The earlier you start saving for retirement, through such vehicles as 401(k) plans where you work, the more wealth you will have accumulated when you finally do retire.

Retirement Planning Starts Earlier Than It Used To

Whatever negatives you have to say about Uncle Sam and all that goes on in Washington, Congress and the Federal government have changed the retirement planning landscape beyond recognition, by creating tax-deferred retirement savings plans.

You can add money to an IRA with the first money you ever earn—even if it's just the $500 you earned from cutting lawns last summer. You can put that $500 into a Roth IRA and let it build up, sheltered from taxes, for the next 50 years. At the end of those 50 years, you can withdraw the money free from all taxes, if you've met all of the qualifications.

You can start contributing money to a 401(k) plan at work as soon as the company's plan permits. That money can build up, tax deferred, for as long as you stay with the company. If you change jobs, you can roll over the money in your 401(k) plan—and allow the tax-deferred buildup to continue.

You can start a sideline business of your own—something to round out your salary income—and start a tax-deferred savings program through a Keogh plan, or something comparable for the self employed.

In other words, it is perfectly possible to be saving, in tax-sheltered accounts, for a full half-century before you finally retire and begin drawing from the money. That wasn't possible a generation ago, before Congress adopted these various tax-sheltered retirement savings accounts. Furthermore, the tax law Congress passed in 2001 has greatly increased the amount of money you can contribute to such plans over the years.

Summing up: There are opportunities to start saving for retirement far earlier than used to be the case. Make the most of all such opportunities open to you and you are virtually certain to be able to lead the good life in the years to come.
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Retirement Is Less Abrupt Than It Used to Be

It used to be possible to think of retirement as a one-day event. One day you were working. Then you retired and the next day you weren't working. One day you were living off your salary income, the next day you were living off a company pension or Social Security, or both.

These days, it's better to think of retirement as a transition—an event spread out over time, rather than something that happens in a day. You may stop working the day you retire, but you could stay on with your present employer in a part time or consulting capacity. Your employer may offer "phased" retirement, in which you begin the process of extricating yourself from your job over time. You gradually cut back your working hours over several years—instead of going from 40 to zero overnight.

If you don't work for your present employer when you retire, you may work for someone else—part time or maybe full time. You might start a business of your own, buy a franchise, or turn a hobby into a part-time venture. One day you're living on your salary. After that, your income is a combination of post-retirement career earnings, pension funds, and/or Social Security. Eventually, the post-retirement income begins to fade away, but then you start "drawing down" your retirement savings plans—your 401(k)s, IRAs, and the rest. In time, all your income will come from your retirement savings plans and Social Security. But the transition which once happened overnight, now takes years.

Summing up: How you plan the transition—the amount of post-retirement income you earn, for instance—will greatly determine how good of a life you actually get to lead. There are more options for post-retirement work than ever before. There are new sources of retirement income to draw upon (tax-sheltered retirement savings plans, for instance). You have to do strategic planning for how you will finance that retirement transition. When you do plan, you can blend all those different post-retirement income sources into a stream of money that will keep you living the good life.

Retirement Will Last Longer Than It Used To

This point has been made before in this lesson: that people live longer than they used to and that you must take that into account when you do your retirement planning. Given longer life expectancies, in fact, it is quite possible you will spend fully one-third of your life in retirement—25 or 30 years or even more, after you leave your full-time job.

One thing that obviously means is that it will take more money to sustain you in retirement. At the least, you will have to monitor your spending throughout retirement—fine-tuning it along the way so your money lasts as long as you live.

But that's not all it means. Not only won't your retirement planning stop when you retire, it will become both more important and more complex. You will have to wrestle with all the issues of a post-retirement career. You will have to have a strategy for drawing down your retirement savings plans—where most withdrawals must start at 70 1/2. You, furthermore, will have to watch closely over the investments in those plans so you maintain an investment strategy appropriate to your age, financial situation, and more. You will have other investments to manage—meaning you will have to integrate investments in both tax-deferred and taxable accounts.

Summing up: There will hardly be a time, until the very day that you die, that you won't have to continue the process of retirement planning. You will have to keep making difficult and critical decisions about spending, investing, working, and more, long after your full-time working career is over. Failure to understand that could put you into a hole so deep in retirement that your life will be anything but good.