Retirement Planning

Retirement is a reality that happens to all working professionals, often starting from the age of
66. Retirement planning encompasses the process of determining income goals and strategic
investment decisions to achieve specific savings goals before retirement. The process involves
sizing up expenses, identifying passive and active income sources, creating saving plans, and
managing assets. Since retirement planning is a lifelong process, individuals can start the
process of saving up for retirement at any point in one’s lifetime, however, it can often be most
effective when starting at a young age when factoring in compounding interest. In retirement
planning, individuals estimate current, and future cash flows to determine if one’s retirement
income goal can be achieved. An effective retirement plan allows individuals to retain their
financial stability and independence after they have completed their professional career, by
saving a percentage of their income while working to have some financial stability and spending
room later in their post-career lives. Every person’s retirement plan is unique, varying on the
different savings goals, spending goals, and lifestyle choices one may decide to have during
their retirement.

The main objectives of retirement planning

The main objective of retirement planning is to achieve financial independence after retirement.
Retired professionals often face financial challenges due to the lack of a monthly salary during
employment. With a retirement plan, individuals get to plan for their future and gain financial
independence even when they are not earning their monthly salary. Another purpose of
retirement planning is to fulfill retirement goals. Retirement is often the period when many
people set lifetime goals such as starting their own venture, picking a new hobby, or traveling to
new places. These may often take up some funding or starting capital to pursue so saving up
during one’s career is important in order to be able to accomplish these goals logistically. With
the right retirement plan, individuals can achieve all of their long-term goals without any

Importance of Retirement Planning

Addresses Medical Emergencies

The future is often full of uncertainties, and people cannot predict what awaits them. Healthcare costs are pivotal to understanding the importance of retirement planning. The risk of complex and expensive medical conditions increases at an old age and can be stressful without financial stability. The healthcare inflation rate and medical expenses are increasing at an alarming rate. As a result, individuals need a robust retirement plan that can address any medical or financial emergency that may arise for both the individual and spouse.

Helps in Fighting Inflation

Inflation is an important factor to consider when planning for retirement. The cost of everyday goods and services increases over time. Over a 40+ year time horizon, the average amount of years individuals spend in the workforce, the cost of these everyday expenses will increase and will be much higher than they were at the start of an individual’s career. This means that the individual must save more money than they think might be necessary to fight everyday inflation. predicting the change in the economy and living standards, and growing their money to counter the effects of inflation.

Ensures Financial Independence

An effective retirement plan ensures that retired persons will not depend on others for financial support after retiring. For generations, older people have depended on their children and friends for financial needs after retirement. Often, many people find it challenging to address their daily needs without supplementary income and less support from family members. Creating a retirement plan ensures that a person becomes financially stable even after their career and does not need financial help from friends or family.

Advantages of retirement planning

To safeguard property and assets

At the end of an individual’s career, many often find themselves with various amount of properties and other major investments under their possession. Without a retirement plan, many people may be compelled to liquidate their property and assets to raise enough money for their lifestyles. Building a retirement plan allows individuals to safeguard assets and property for their future generations, children, and grandchildren.

To benefit from the returns of investment

Individuals should begin saving for retirement as early as possible to grow their retirement benefits for a longer period and with compound interest. This way, they can maintain an affordable savings plan for a longer period of time and benefit from the compounding effect. Therefore, retirement planning allows people to benefit from the returns of their investments for a longer period.

To deal with transitions smoothly

The life of every individual involves various changes that may need immediate execution. These
changes may be within constricted timeframes requiring the use of the available funds. It could
be a change in job location, career change, or relocating residents. After working years,
individuals may also take a sabbatical for higher education to achieve their lifetime goals. In
either case, retirement planning makes it easier to transition seamlessly without affecting
personal finances.

To make smart decisions

Financial decisions have both short-term and long-term impacts. Some of the financial decisions that individuals make may involve questions like: When should I take social security? How can I reduce taxes? How can I maximize my employer benefits? Building a retirement plan creates financial enlightenment to allow people to make well-informed financial decisions. A retirement plan equips individuals with enough financial knowledge in relation to achieving their goals in order to make wise choices.

Types of retirement planning

Retirement plans can be grouped into two main types, individual retirement plans, and employer-sponsored plans.

Individual retirement plans

The main types of individual retirement plans include Roth IRAs, traditional IRAs, and rollover
IRAs. Roth IRAs are individual retirement plans that offer tax-free growth and withdrawal during
retirement. Individuals who have owned their account for more than five years and are older
than 59 years can withdraw the amount of money they want. A Roth IRA is an effective
retirement plan that individuals can use when taxes are higher during retirement than they
would be at the current moment. Roth IRAs can be funded through regular contributions,
transfers, spousal IRA contributions, and rollover contributions. A traditional IRA allows
individuals to make pre-tax contributions while the investment grows tax-deferred. After
retirement, the individual would pay income tax on withdrawals to use the funds. Early
withdrawals for traditional IRAs are taxed as income with a penalty of 10 percent. Rollover IRAs
allow individuals to move funds from an employer retirement plan to an individual IRA account.
With rollover IRA, individuals can preserve the tax-deferred status of their assets without an
early withdrawal penalty or paying current taxes at the time of transfer.

Employer-sponsored retirement plans

Employer-sponsored retirement plans are offered to employees at relatively low cost or no cost.
These plans include 401(k), 403(b), pension, and simple plans. The 401(k) retirement plan is
the most common employer-sponsored plan. Employees are responsible for contributing to this
plan, and employers will often match a certain percentage of the money that they put in. The
401(k) also allows employees to select which investments their money goes to and control the
account during retirement. The 403(b) plan is designated for non-profit organizations such as
churches, public schools, and hospitals. Employees fund the 403(b) plans, and contributions are
subject to tax deductions. In a simple retirement plan, employees make tax-deductible
contributions while the employers match them up to 3 percent of their salary. The pension plan
applies to individuals who have served in pensionable offices before retiring. It guarantees the
retiree a certain amount of money every month for the rest of their life.

How can Arrowroot Family Office help you with your retirement planning?

Arrowroot Family Office understands that creating a comprehensive retirement plan is a challenge for many people. As a result, Arrowroot Family Office focuses on helping individuals fulfill the years of their lives and achieve financial independence in their retirement. Arrowroot Family Office uses different retirement plans to help individuals depending on their situation. IRAs, 457(b)s 401(k)s, and 403(k)s are some of the investment plans that individuals can use to build their retirement savings. The financial advisors at Arrowroot Family Office have different strategies to help individuals maximize retirement savings and ensure they live a comfortable life after retirement. Below are the ways financial advisors at Arrowroot Family Office help clients in creating a retirement plan.

Tax planning: With a personal savings account like the 401(k) or the IRA, it can be difficult to determine which one is highly affected by taxes. The financial advisors at Arrowroot Family Office help clients decide when to withdraw from various accounts, which may not be useful based on their personal circumstances. The advisors evaluate the client’s situation and make tax predictions to offer an idea of what to expect. Then a retirement withdrawal strategy that gives the client the most benefits in retirement is prepared.

Investment management: Liquidation of assets and properties is often viewed as a great source of income through retirement. Arrowroot Family Office provides investment management services to help clients build a diversified portfolio. It is important to consult financial advisors in managing investments to ensure the withdrawal rate leaves enough income to use during retirement. Financial advisors help clients to withdraw a sufficient amount of income at the right time and avoid liquidating assets when they do not need income.

Social security: 89 percent of US workers are covered by social security. Since this number is very high, there are higher chances that many people do not fully benefit from social security due to poor planning. Financial advisors at Arrowroot Family Office help clients in optimizing their retirement plans to ensure they benefit from social security. The social security fund may not be sufficient for some individuals after retirement. Therefore, Arrowroot Family Office analyses every client’s situation based on their age, years they have worked, and their personal goals.

The tax planning, investment management, and social security strategies used by financial advisors at Arrowroot Family Office are tailored for a specific client. The retirement plan also comes with different intricacies, which require the optimization of all possible benefits. Thus, Arrowroot Family Office can help individuals become confident in their retirement and prepare for any unforeseen events.

Helping you achieve your evolving financial objectives

Frequently asked questions

Retirement planning is the process of determining income goals and decisions to achieve these goals before retirement. It involves sizing up expenses, identifying income sources, and creating a saving plan, and managing assets.
Retirement planning helps individuals to avoid running out of money after retirement. The retirement plan allows retirees to be financially independent, live comfortable lives, and achieve retirement goals.
The amount of savings needed for retirement varies from one person to another. To determine the amount of money needed in retirement, individuals should consider their current salary, rate of inflation, taxes, and lifetime goals.
After retirement, you don’t have to worry about running out of money as long as you have a retirement plan with retirement savings or social security benefits. One way to avoid outliving retirement savings is through an annuity. Annuities can provide both growth and protection, along with knowing that income is guaranteed during retirement despite the market situation.
This is a permanent type of insurance that allows cash value growth and provides death benefits. It offers two-benefit protection that provides security for family members while it builds cash value for retirement.
Although financial advisors can predict the markets, the timing of negative investment returns can significantly affect the client’s portfolio. Working with financial advisors to implement the top options to protect the investment. Therefore, assets and properties continue to grow provided the right retirement plan is in place.
Although most people assume the tax bracket will be lower tax bracket after retirement, this might not be the case. The tax bracket after retirement will remain the same as before retirement. However, the tax bracket can reduce in the case of pension income and any withdrawals from taxable retirement accounts.
The standard advice is to save “as much as you can.” However, many financial advisors recommend that you save from 10% to 15% of your monthly income.
Financial advisors recommend that the earlier you start saving, the better. However, it is irrational to start saving money while in college, especially when you still have student loans. Retirement savings should start after a person starts earning.
It is important to know which works better between these types of IRA. With a traditional IRA, individuals can make pre-tax or after-tax contributions, the money grows tax-deferred, and withdrawals are taxed as income. A Roth IRA is highly preferred because it allows individuals to grow tax-free money and make tax-free withdrawals.