In the simplest sense, retirement planning is the planning one does to be prepared for life after paid work ends, not just financially but in all aspects of life. Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. It includes identifying sources of income, estimating expenses, implementing a savings program, tax considerations, and managing assets. Future cash flows are a critical component.
There are also many non-financial aspects of retirement including lifestyle choices such as how to spend time in retirement, where to live, when to completely quit working, etc. Also of importance are estate plans, long-term care insurance, Medicare and Social Security election. A holistic approach to retirement planning considers all these areas.
The emphasis one puts on retirement planning changes throughout different life stages. Early in a person's working life, retirement planning is about setting aside enough money for retirement, typically in workplace programs such as a 401(k) plan. During the middle of your career, it might also include setting specific income or asset targets and taking the steps to achieve them. Once you reach retirement age (a different age for everybody driven my personal circumstances), you go from accumulating assets to an asset distribution phase. You’re no longer contributing - - now you’re withdrawing.
It has been proven that the rate of savings over time is more important than the rate of return on investments. In other words, saving early and often will have the greatest impact on your wealth and will offer the best opportunity to accumulate a sufficient retirement nest egg. Discipline matters rather than clever investment choices.
