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Your retirement can be tricky to plan for. Financial preparation for your future requires a deep understanding of the ins and outs of various retirement savings plans as well as knowledge of your own personal and unique financial situation. From IRAs to defined contribution plans, there is an abundance of opportunities available to ensure your financial security in retirement.

However, it’s not only important to determine which methods work best for you; it’s equally important to know just how soon you should begin to plan for your retirement. Fortunately, Fogel Capital Management has laid out some of the basics of various retirement savings schemes as well as when it’s best to begin planning for your retirement.

Retirement Savings Schemes

To plan for retirement requires a great amount of discipline, perseverance, and knowledge of the opportunities and services available to you. However, planning for retirement in and of itself is a fairly broad term. Many people wonder if it is sufficient to set aside 10% of your monthly income regularly. In a word, yes.

However, there are many more active methods of planning for your retirement, especially if you wish to start earlier. From active or passive investing to leverage (defined as expanding your resource base to allow you to have more resources in less time), various plans exist to assist you in securing your financial future.

Some Common Retirement Plans Include:

  • IRA: A tax-favored retirement account, an IRA allows you to put a certain amount into the account yearly. You can then invest in your contributions tax-deferred, which means that no taxes must be paid on an annual investment gain. The money can be invested in stocks, mutual funds, and other types of investments. However, trying to cash before age 59 ½ can result in a 10% penalty fee as well as income taxes.
  • Roth IRA: Contributions to a Roth IRA are made after tax; the difference is that all money generated from the Roth IRA will not be taxed again. Contributions made to a Roth IRA can be withdrawn without any penalties, making this an ideal tax break.
  • 401k plan: These are workplace retirement accounts that are offered as part of employee benefits, allowing you to contribute part of your gross paycheck into a tax-deferred investment account. Most employers match employee contributions in the 401k plan up to a certain percentage.
  • Pension plan: While different from a retirement plan because the investment risk is on your employer (a 401k plan, for example, has no guaranteed minimum/maximum benefits), pension plans still contribute to your retirement once set up with your employer. Some common plans include the defined contribution plan (where your employer contributes a fixed amount to your benefit), the defined benefit plan (which is determined based on your salary and period of employment and is based on a formula for payment calculation), and a cash balance plan (a hybrid of the first two).
When to Start Planning

In an ideal world, it is better to start planning for your retirement sooner rather than later. If your aim is to retire at 65, and retirement is 15 to 20 years away, the primary goal is to focus on accumulating retirement assets. Whether it’s simply setting aside a fixed amount of money into a tax-deferred account for 10 years, it’s better to start as soon as you can.

The closer you get to retirement (10 years or so), it’s time to buckle down and get more serious. You need to get all assets into orders, such as RRSPs, government benefits, and so forth. As retirement draws closer, focus on pension plan options, apply for benefits, turn your RSPs into income, and other similar steps. A retirement planner can help you navigate these often complex and tricky waters, especially when it comes to higher taxes, catch-up contributions, and detailed expense analysis.

That said, early retirement is a valid alternative to traditional retirement. However, there is a unique set of difficulties and challenges that need to be overcome. Inflation will severely impact your saving’s purchasing power, which can halt your early retirement plans. Early retirement also tends to lead to an increase in expenses because of an active lifestyle, which in turn requires excess wealth. Another drawback involves no Social Security or Medicare until later years. However, these are challenges that can be surmounted; they merely require in-depth planning and strategizing as well as more effort.

In conclusion, provided you wish to stick to a traditional retirement plan, it’s never too early to start setting aside money and setting up plans. As retirement draws nearer, it’s wise to focus on your specific goals. In the event of early retirement, it’s paramount to begin immediately to ensure comfortable living. If you are looking to achieve your retirement goals with actionable results, the Fogel Capital Management team will help you do just that. Call today to schedule an appointment.

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