Create a personal retirement plan that addresses basic needs, a savings strategy, and income sources while anticipating issues that negatively impact planning for retirement.
In 150-250 words, create a summary of a retirement plan. Include the following:
- Determine the presumed retirement age and find the average life expectancy for someone the age of 23 and female. Calculate the years you believe you will have as a retired person. Now reevaluate the assumptions, considering that you may live longer than the average. How many years might you have in retirement?
- Develop a preliminary retirement savings strategy that outlines how much you need to contribute initially and annually to your chosen retirement accounts to reach your goals. What retirement savings or investing options will you need to consider to add?
- Based on current assumptions, what sources of income will you anticipate having in retirement (e.g., Social Security, pensions, rental income)?
- Discuss what expenses will likely be higher during your retirement than now. Include two barriers that often keep people from saving for retirement and how you plan to overcome these barriers in your own retirement planning.
Full Answer Section
Anticipated Income Sources in Retirement
- Social Security: I expect to receive Social Security benefits upon reaching retirement age.
- Pension (if applicable): If my employer offers a pension plan, I will contribute to it and expect to receive pension income in retirement.
- Retirement Account Withdrawals: I will withdraw funds from my 401(k) and IRA to supplement my income.
- Rental Income: I may consider investing in rental properties to generate additional income.
Potential Challenges and Solutions
Two common barriers to retirement savings are:
- Lifestyle Inflation: The tendency to increase spending as income increases.
- Short-Term Goals: Prioritizing immediate needs over long-term savings.
To overcome these challenges, I will:
- Budgeting: Create and stick to a budget to track expenses and prioritize savings.
- Automate Savings: Set up automatic transfers from my checking account to my retirement accounts.
- Financial Planning: Consult with a financial advisor to develop a personalized retirement plan.
By taking these steps, I aim to secure a comfortable and financially stable retirement.
Sample Answer
Personal Retirement Plan
Retirement Age and Life Expectancy
I anticipate retiring at the age of 65. As a 23-year-old female, my average life expectancy is around 80 years. This suggests a potential retirement period of 15 years. However, given advancements in healthcare and increasing life expectancies, it's prudent to plan for a longer retirement, perhaps 20-25 years.
Retirement Savings Strategy
To achieve my retirement goals, I will prioritize the following savings strategies:
- 401(k) Plan: I will contribute a significant portion of my salary to my employer-sponsored 401(k) plan, taking advantage of any employer match.
- Individual Retirement Account (IRA): I will open and contribute to a Roth IRA to supplement my retirement savings.
- Health Savings Account (HSA): I will use an HSA to save for future healthcare costs.
I will aim to save at least 10-15% of my annual income for retirement. As my income grows, I will increase my contributions accordingly.