Creating Your Retirement Blueprint

 

Retirement means something different to everyone. Whether you want to see the world, spend time with family, pursue a new passion, or even continue working, it’s a time to focus on the things that matter most to you. But, as with most major milestones, achieving a specific vision for retirement takes some forethought and discipline.

Between the complexities of retirement planning and the pressure of day-to-day financial concerns, saving for retirement can be daunting, and many people put it off as long as possible. In fact, 56% of Americans don’t know how much they’ll need to save for a comfortable retirement, with 37% have little to no savings at all, and 46% of workers saying they expect to work beyond 65.1

The reality is, though, the sooner you begin to prepare, the easier the task becomes and the greater your chance of meeting your goals. The good news is that no matter where you’re starting from, there are steps you can consider today to better position yourself.

To help make your dream retirement a tangible reality and simplify your path forward, we’ve laid out a five -step Retirement Blueprint for you to consider:

Step 1: Imagine Retirement

It’s tempting to focus your vision for retirement on the things you don’t want to do anymore – 40-hour work weeks, daily commutes, the hustle and grind of a career. But, in order to build a realistic retirement plan, you must visualize what you do want to do, in detail. Think about what you want your day-to-day life in retirement to look like, and ask your spouse or partner to do the same if you have one. Tease out as many details as you can:

  • Aspirations: If money wasn’t an issue and you could achieve whatever you’d like, what would you do?
  • Family and Friends: Who is part of your retirement journey (e.g., a spouse, children, grandchildren, friends, etc.)?
  • Location & Travel: Would you like to spend most of your time close to home and family, or would you like to travel, perhaps internationally?
  • Legacy: Are there any special interests or causes you’d like to contribute to, financially or with your time and talent?

Can you now imagine yourself in your golden years, and are you excited about what’s possible? Think about which answers came naturally and which were tougher. Note which areas you’d never considered before and which sparked additional thoughts and questions. And if you did this exercise with a partner, discuss what you learned from one another. Above all, take stock of whether you feel any different towards retirement now that you’ve imagined yourself in it. 

Step 2: Take Inventory

Once you have a clearer vision for your retirement, the next step you may want to consider is to take inventory of your financial situation. From your current savings and expenses to any investments and your projected Social Security benefit, evaluating your resources and lifestyle will help you set a target for your retirement savings.

The following questions can help provide a framework:

  • Income: What is your annual salary, and your overall household income?
  • Savings: How much do you have saved currently, and is that money in retirement accounts, investment accounts, or other assets?
  • Expenses: What do your current monthly expenditures look like (food, home expenses, utilities, healthcare costs entertainment, etc.), and how do you see it changing in retirement?

It can be uncomfortable or overwhelming to examine your finances so closely. But it’s critical to have a realistic understanding of where you are in order to effectively plan for where you want to be. 

Step 3: Acknowledge the Life Changes

It’s always easier to plan for routine, expected expenses, but no retirement roadmap would be complete without accounting for the big life transitions as well as the unknowns. Here are some of the major variables to consider:

  •  Healthcare costs: Take into account your healthcare costs today and how you plan to cover them as they change in coming years, taking into account medical and personal history and if applicable, leaving your current employment plan.
  • Career: Think about if you want to stop working in retirement and if you want to continue working, consider how that income will contribute to your savings whether that’s doing part time work in a new field or starting a business.
  • Property: Reflect on your current residence and whether or not you will sell it, pay it off, upsize, downsize, and/or find investment properties.
  • Family support: Give thought to your relatives or other loved ones and how you will be supporting them in the future, if at all.

Do you normally lean into big life changes or fear them? If the latter, thinking about how preparing well in advance can help you better equip yourself for these moments in retirement. 

Step 4: Leverage Workplace Retirement Plan

If your company offers retirement benefits, make sure you consider taking full advantage of what they have to offer:

  • Maximize Contributions & Matching: In 2021, the maximum amount you can contribute to your 401(k) plan is $19,5002. When you max out your traditional 401(k) plan savings, you not only save more for retirement, you potentially pay less in taxes that year since your taxable income would be lowered. Additionally, if your company offers a matching contribution, find out how much of your salary you need to save in order to get the maximum possible 401(k) match.
  • Catch up on Contributions: If you’re 50 or older, you’re eligible to make “catch-up” contributions to your 401(k) plan, up to an additional $6,500. This brings your maximum possible 401(k) contribution per year to $26,000,3 and can help boost savings as you prepare to make the transition out of the workforce. This contribution limit will remain the same in 2021.4
  • Look into an IRA or other accounts: If you’ve maxed out your retirement plan at work, you can consider looking into other accounts that you can contribute to on a regular basis such as a traditional IRA, Roth IRA, and/or a Health Savings Account (HSA).5 In addition to helping you save more for retirement, these accounts – and contributions – can also help reduce your taxable income, generate tax-advantaged growth potential in your accounts and keep more of what you’ve worked so hard to save. You should discuss these options with your legal and tax advisor.

Step 5: Set Goals and Start Planning

Now that you’ve got a vision to work towards—one that encompasses daily realities and big life moments—you’re well positioned to craft or refine your plan to reach your retirement goals.

  • Break it down: Set specific savings targets and tasks to complete at 10, 5, and 1 year out from retirement.
  • Educate: Understand the retirement saving tools available at your workplace (and your spouse or partner’s, if applicable). Learn about any benefits you may be entitled to upon retirement. Research healthcare options.
  • Review: Commit to doing a review every quarter of how your retirement investments are performing towards your goals and adjust as needed.

There’s certainly a lot to consider, but fortunately you don’t have to go it alone. A Morgan Stanley Financial Advisor can offer educational resources to help you stay on track and make the most of your opportunities to save.

Footnotes

1 https://news.northwesternmutual.com/planning-and-progress-2019

2 https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500

3 https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500

4 https://www.irs.gov/newsroom/income-ranges-for-determining-ira-eligibility-change-for-2021

5 https://www.thebalance.com/hsa-vs-ira-you-might-be-surprised-2388481

 

Disclosures

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

©2021 Morgan Stanley Smith Barney LLC.  Member SIPC.

CRC#3481644 (03/2021)