Retirement Financial Strategy

Deciding on Amount

When it comes to planning for retirement, you need to have an end goal in mind. Many people arbitrarily start saving money for retirement, but they have no idea how much they actually need to live on once they get there. Spend some time thinking about how much you need to save to live on during retirement. Evaluate your living arrangements, your living expenses and any other costs that you can come up with. Try to determine a realistic number that you need once you retire. Planning on having somewhere between 60 and 80 percent of your previous income is a good guideline to shoot for.

For most people, the money that they need for retirement comes from several different sources. Most people are eligible for Social Security benefits once they reach the appropriate age. This provides some income to compliment any other sources that you may have. You may also receive benefits from a pension plan with your employer, or from a retirement account that you set up. Your retirement account will most likely be the largest source of money during retirement, unless you have a substantial pension from your employer.

As part of your retirement planning strategy, you need to access a tax-advantaged retirement account. For example, you may be able to access a 401k from your employer. This allows you to set aside pretax money and defer taxes on investment earnings. The Individual Retirement Account, or IRA, allows you do the same thing except you do not set it up through an employer. You could also set up an after-tax retirement account such as the Roth IRA or the Roth 401k.

When planning for retirement, you have to set aside a certain amount of each paycheck that you receive. Once you choose the type of retirement account that you will use for this process, you need to determine how much to save. Setting aside somewhere between 10 and 20 percent of each paycheck may provide you with enough once you reach retirement. Once you know the total that you need to save, you can determine how much you need to save out of each paycheck to get to that amount.