Retirement Planning Fundamentals

As you begin to shape your retirement income strategy, keep in mind that each person’s goals and financial circumstances are different. A well-designed plan should reflect your lifestyle preferences and overall financial picture. The following fundamentals can help you start building a retirement strategy that works for you.

• Assess Your Retirement Goals
• Clarify Your Financial Picture
• Identify Retirement Timing and Income Sources
• Ways to Grow Your Retirement Savings
• Withdrawal Rules and Tax Considerations
• Retirement Planning for Business Owners
• Planning for Tax-Exempt Organizations
• Non-Qualified Deferred Compensation
• Common Pitfalls to Avoid

Assess Your Retirement Goals

Key questions to consider:

• What age do you plan to retire?
• How much have you saved toward retirement so far?
• What are your current monthly and annual expenses?
• Given a projected inflation rate of 3–5%, what could your future living costs be?
• Do you intend to work part-time during retirement?
• What are your key goals for your retirement years?

Your plan should be tailored to your unique situation. Once you estimate how much income you’ll need, you can evaluate savings strategies, investment tools, and employer-sponsored plans that align with your goals. Whether you’re an employee, executive, or business owner, customizing your plan is essential.

It’s also important to understand Social Security, explore healthcare options like Medicare and long-term care insurance, and take an active role in managing your financial resources. No matter your asset level, a comprehensive perspective can help you shape the retirement lifestyle you want.

Clarify Your Financial Picture

Assess income, expenses, and assets:

• Evaluate your income, expenses, debts, and assets.
• How much income are you earning?
• What are your fixed versus flexible expenses?
• What types of assets do you hold?
• What is your current debt load?
• What does your overall financial picture look like?

While reviewing these areas, consider potential lifestyle changes in retirement. Will you stay in your current home, move to a smaller residence, or relocate to be closer to family? Your retirement vision will help shape the plan that supports it.

Identify Retirement Timing and Income Sources

Primary income sources include:

• Social Security benefits
• Employer-sponsored pensions or retirement plans
• Investment accounts
• Personal savings

If your employer offers early retirement incentives, carefully evaluate how those offers would affect your overall financial security. If you anticipate a future income gap, adjusting your savings and investment plan early can help you stay on track.

Ways to Grow Your Retirement Savings

Popular strategies include:

• Traditional and Roth IRAs
• Employer-sponsored retirement plans
• Non-qualified deferred compensation programs
• Equity compensation or stock options
• Annuities

It’s important to understand how each option works and the tax implications involved. When in doubt, consult with your CPA for personalized tax guidance.

Withdrawal Rules and Tax Considerations

Withdrawals are subject to specific tax rules. For example, taking distributions before age 59½ may result in a 10% early withdrawal penalty. Ask yourself:

• Is borrowing from your retirement account an option?
• Should you take a lump sum or periodic withdrawals?
• Is rolling funds into an IRA a strategic move?
• What tax impact occurs when naming multiple beneficiaries?
• When do required minimum distributions begin, and how much will you need to withdraw in your 70s?

Retirement Planning for Business Owners

If you own a business, retirement planning should include a clear succession strategy—whether that means transferring ownership to family, a partner, or a third party. It’s also important to choose the right type of retirement plan that supports your company’s financial goals.

Retirement Plan Options for the Self-Employed and Small Businesses

• Payroll Deduction IRA
• Simplified Employee Pension (SEP)
• SIMPLE IRA
• SIMPLE 401(k)
• Keogh Plan

The Keogh plan is a qualified retirement option designed for self-employed individuals and partnerships. If you’re unsure about the right fit, consult a licensed professional to compare options.

Retirement Plans for Larger Businesses

For corporations with multiple employees, balancing competitive benefits with financial sustainability is key. Common retirement plan options include:

• Payroll Deduction IRA Plan
• Simplified Employee Pension (SEP)
• SIMPLE IRA Plan
• SIMPLE 401(k) Plan
• Standard 401(k) Plan
• Profit-Sharing Plan
• Money Purchase Pension Plan
• Age-Weighted Profit-Sharing Plan
• New Comparability Plan
• Thrift/Savings Plan
• Defined Benefit Plan
• Employee Stock Ownership Plan (ESOP)
• Cash Balance Plan

Planning for Tax-Exempt Organizations

Tax-exempt organizations have distinct planning needs. Since they do not pay federal income taxes, nonprofit retirement plans are structured differently. Common options include 403(b) and 457(b) plans, which are specifically designed for tax-exempt employers.

Non-Qualified Deferred Compensation (NQDC) Plans

NQDC plans offer flexibility and higher contribution limits than traditional qualified plans, but come with trade-offs:

• Less favorable tax treatment
• Participation is often limited to key employees or executives
• Assets may be at risk if the employer faces bankruptcy

For most individuals and business owners, qualified retirement plans may be a more secure option. NQDC plans are generally best suited for C corporations.

Common Pitfalls to Avoid

• Underestimating healthcare and long-term care costs
• Neglecting inflation in income projections
• Withdrawing retirement funds too early or in an inefficient sequence
• Failing to update your plan after major life changes
• Not consulting a professional when considering complex strategies or tax moves