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Retirement 101: how to build a retirement savings plan


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Learn the basics of saving for retirement and why everyone should have a plan.

Most people look forward to retirement as a chance to sit back, relax, and enjoy the things they don’t have time to do while working full-time and juggling life. While imagining our futures spending all of our time doing what we love sounds great, it’s unlikely to come true unless we save – save a lot. I know, saving for the future is all too easy to put off in favor of other, more immediate, spending needs and then there’s “wants.” The result of this, though, is that many people don’t have enough saved for the financial security and stability they wished to see when it comes time to retire.


Have you started saving for retirement? If so, are you saving enough? If you have started saving, that’s great! If you haven’t started or don’t know whether you’re saving enough, you’re not alone and you shouldn’t be discouraged. Wherever you are in your retirement planning, it’s not too late to develop or refine your savings strategy. This quick lesson will give you the understanding and tools you need to start building the foundation of the future retirement lifestyle, you want.

1. Setting Your Retirement Savings Goal

The first step to planning for retirement is to set your retirement savings goal, i.e. how much money you will need to save to live in retirement. How do you set your savings goal? You need to decide when you want to retire and estimate what your cost of living will be in retirement.

Start by estimating the monthly expenses you’ll have down the road. Think about housing, food, transportation, medical expenses, insurance, personal care, family care, travel, entertainment, charitable contributions, and anything else you want to include in your budget in retirement. 

Next, decide what age you want to retire. What is your life expectancy? Based on what age you want to retire and your life expectancy, calculate how many months you’ll spend in retirement. Then, multiply your number of months in retirement by your estimated monthly expenses to get the total amount you’ll need in retirement. This is the amount you’ll need to save by the time you retire and what you should set as your retirement savings goal.

This gives you a baseline total to work off of, but it’s important to note the exact amount you’ll need to save will be impacted by factors such as inflation. When it comes to inflation, here’s some critical info on the importance of time and power of compounding interest when saving for retirement:

The Importance of Time and Power of Compound Interest

When planning your retirement, one of the most important elements to remember is time. The earlier you start saving, the more time your money has to grow. Compound interest is when you earn interest on the principal amount of an investment plus any accumulated interest, i.e. it’s when you reinvest interest you earn on an investment (rather than paying it out), so then you’re earning interest on that reinvested interest. Why not let your money work for you? The earlier you start saving and investing, the more you stand to gain from the power of compound interest and the closer you’ll get towards reaching your retirement goal.

2. Developing Your Savings Strategy

Now that you’ve set your goal and understand the importance of time, what are the specific steps to putting together an effective retirement savings strategy? There are many ways to start saving, so let’s explore some.

Retirement Savings Account Options

The best way to save for retirement is through, you guessed it, a retirement savings account. There are several retirement savings vehicles, all of which are designed to help you accomplish your long-term savings goals.

  • Employer Plans: Many employers offer tax-deferred retirement plans such as a 401(k) or 403(b). Depending on the type of account, employer plans offer different tax benefits and allow participants to make automatic contributions straight from their paycheck. They also usually offer a wide range of investment options. Employer Plans are one of the most convenient ways to save and invest. Every employer-sponsored plan is different and because it’s a long-term savings vehicle, there are rules to when you can withdraw the funds. Be sure to thoroughly research and understand the details of the options available to you.
  • Individual Retirement Accounts (IRAs): If your employer doesn’t offer a plan, you’re self-employed or you’re just looking for another vehicle for retirement savings, anyone can open an Individual Retirement Account (IRA). There are different types of IRAs, but they come with similar tax benefits and investment options to most employer plans. Also, similar to employer-sponsored plans, there are rules for when you can take out money and how much you can contribute. Be sure to do diligent research before deciding which account type is right for you.

Investment Options

As mentioned earlier, the earlier you start saving and investing, the more time your money has a chance to grow. Most retirement savings accounts like the ones mentioned above are composed of a preset choice of investment options, such as mutual funds. If you have many years until retirement, you may want to take more risk and invest in financial products like stocks. Stocks are generally considered riskier than bonds but have more potential to earn you money over time. As you get older and you have less time until retirement, you may want to focus on lower risk investments with fixed incomes, such as bonds. This is because when you are no longer working, you will need to have dependable investment income that you can count on each month.

Automate Your Savings

One way to commit to saving for retirement is to set up scheduled or automated deposits into your retirement account(s). Make your money work for you over the long term by putting it away on a regular basis, eventually you won’t even notice it’s happening.

Manage Your Plans

Once you get started on a retirement savings and investing strategy, your retirement investments need to be continually managed over time to ensure that you are maintaining the risk and return levels that you need for a secure retirement. Review your retirement investments on a regular basis (at least annually) and adjust your strategy based on where you are in reaching your goals.

Research All Your Options

Before implementing any kind of retirement savings strategy, it is important to research all your options. It may be advantageous to speak with a professional who can help you understand the best way to invest your savings in terms of diversification, risk level, tax considerations and time horizon. Everyone is different, and you want to choose which option is best for you.

3. Implement your Plan

In order to have financial security when you decide the time has come to stop working full-time, you’ll want to implement your plan as early as possible (and keep checking on it to make sure it’s meeting your needs). Deciding how and where to save and invest your money is up to you, and we cannot tell you which choice is best for your situation (not in an article at least). Once you have explored all your options and identified a strategy that will work for you, put your plan into action as soon as possible.

It is clearly important to develop and implement a strategy for planning a stable and secure retirement. So what is your plan? Whatever it is, get started today!



Please note: Financial advice should be tailored to individual circumstances and the content of this article should not be viewed as recommendations. This article is not an endorsement of any particular product, service or organization; nor is it intended to provide financial, tax or legal advice. It is intended to promote awareness and is for educational purposes only. The specific applications and services noted are not necessarily endorsed by John Hancock or any of its affiliated businesses.

Advisory services offered through John Hancock Personal Financial Services, LLC, an SEC Registered Investment Adviser. Boston, MA 02117. 888-955-5432.

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