Retirement Saving 101

Save money for retirement: this is something we all hear and know we should do. Even if you have been contributing to a 401(k) or other retirement account, you might not be familiar with the basics of retirement saving, especially as you begin to approach retirement age. Many of the questions that we receive from clients at Marshall Financial Group surround this topic. Here are 4 commonly asked questions about saving for retirement.

When should I start saving?

The easy answer is: as soon as possible. Some people feel that the expenses that come with early adulthood make saving hard. These include paying off student debt, buying a house, and starting a family. However, the earlier you start saving, the more time your money has to grow. Aim to save 10 to 15% of your pre-tax income.

Starting early is especially important if your employer offers a 401(k) with matching contributions. While it might feel hard to set aside part of your paycheck, your employer is essentially giving you money for retirement, and you should maximize your contribution, if possible. You may also be able to contribute to an Individual Retirement Account (IRA), which has lower annual limits than a 401(k) but is not tied to your employer.

How much do I need?

The proverbial crystal ball would certainly be helpful in retirement planning. If you knew how long you wanted to work, what your assets would be worth, and when you were going to die, it would be a lot easier to plan for retirement. More practically, financial planning can help to evaluate how much you currently have saved and what that will be worth when you reach retirement age. Although there are boilerplate formulas to determine the percentage of your pre-retirement income you will need, we recommend a more personalized approach. Perhaps you will travel more, or possibly spend less on certain expenses. Your goals and needs will be unique to you and your planning needs should reflect this.

When can I retire?

Retirement is a goal that can mean different things to each of us. For some, it means never needing to work again. For others, it means having the flexibility to pursue new endeavors that may or may not generate income. For most people, retirement means financial independence and freedom. To achieve this, you must evaluate your goals and review your investments and resources considering how much you will need in retirement. The attainment of this goal is tied to the age at which you begin this planning process in addition to your commitment to its achievement.

There are certain specific parameters that must be considered. Beginning at age 59½ you can withdraw from your 401(k) and IRAs without penalty. Although full retirement age for Social Security ranges between age 65-67 (depending on your date of birth), your monthly benefit actually continues to grow until the age of 70 if you delay claiming until a date after full retirement age. The age at which you begin receiving Social Security benefits can have a substantial impact on the value of your overall lifetime benefits.

Another question you should ask is: when do I want to retire? Americans work longer and have a higher age when they are eligible for public benefits like Social Security compared with other countries. One reason for this might be that we want to keep working. Thinking about when you want to stop working can help you decide when you should retire.

Where should my retirement money come from?

The Three-Legged Stool Approach is a way to visualize where your money will come from in retirement. Each leg is one source of income that you will be able to draw from: Social Security, Qualified Retirement Plans like 401(k)s and IRAs, and Personal Savings. Like a diversified portfolio, this concept highlights the importance of each element in the establishment of a solid retirement income plan.

Achieving financial independence and the freedom that it can afford is an important goal. The fulfillment of this life goal is directly related to a well-developed and executed plan. The sooner you begin to focus on this goal, the earlier it can be realized.


Marshall Financial Group is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.