

But there's good news: Retirement planning is easier than it used to be, thanks to the many tools and resources available. Here are some basic steps to help get you started.

Determine your retirement income needs



Remember to take inflation into account. The average annual rate of inflation over the past 20 years has been approximately 2.5 percent. (Source: Consumer price index (CPI-U) data published by the U.S. Department of Labor, 2013.)

And keep in mind that your annual expenses may fluctuate throughout retirement. For instance, if you own a home and are paying a mortgage, your expenses may drop if the mortgage is paid off by the time you retire. Other expenses, such as health-related expenses, may increase in your later retirement years. A realistic estimate of your expenses could help tell you about how much yearly income you may need to live comfortably.

Calculate the gap

Once you have estimated your retirement income needs, take stock of your estimated future assets and income. These may come from Social Security, a retirement plan at work, a part-time job, and other sources. If estimates show that your future assets and income could fall short of what you need, the rest would have to come from additional personal retirement savings.

Figure out how much you'll need to save

By the time you retire, you'll need a nest egg that could provide you with enough income to fill the gap left by your other income sources. But exactly how much is enough? The following questions may help you find the answer:


Build your retirement fund: Save, save, save

When you know roughly how much money you'll need, your next goal is to save that amount. First, you'll have to map out a savings plan that works for you. Assume a rate of return that you are comfortable with, and then determine approximately how much you'll need to save every year between now and your retirement to reach your goal.

The next step is to put your savings plan into action. It's never too early to get started (ideally, begin saving in your 20s). To the extent possible, you may want to arrange to have certain amounts taken directly from your paycheck and automatically invested in accounts of your choice (e.g., 401(k) plans, payroll deduction savings). This arrangement could help reduce the risk of impulsive or unwise spending that could threaten your savings plan--out of sight, out of mind. If possible, save more than you think you'll need to provide a cushion.

Understand your investment options


If you don't have the time, energy, or inclination to do this yourself, hire a financial professional. He or she can explain the options that are available to you, and can assist you in selecting investments that are appropriate for your goals, risk tolerance, and time horizon.

Use the right savings tools


Employer-sponsored retirement plans allowing employee deferrals (like 401(k), 403(b), SIMPLE, and 457(b) plans) are powerful savings tools. Your contributions come out of your salary as pretax contributions (reducing your current taxable income) and any investment earnings are tax deferred until withdrawn. These plans often include employer-matching contributions and should be your first choice when it comes to saving for retirement. Both 401(k) and 403(b) plans can also allow after-tax Roth contributions. While Roth contributions don't offer an immediate tax benefit, qualified distributions from your Roth account are federal income tax free.

IRAs, like employer-sponsored retirement plans, feature tax-deferral of earnings. If you are eligible, traditional IRAs may enable you to lower your current taxable income through deductible contributions. Withdrawals, however, are taxable as ordinary income (unless you've made nondeductible contributions, in which case a portion of the withdrawals will not be taxable).

Roth IRAs don't permit tax-deductible contributions but allow you to make tax-free withdrawals under certain conditions. With both types, you can typically choose from a wide range of investments to fund your IRA.




Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.