According to a 2018 survey, 48 percent of working Americans expected to retire after 65. But despite these lofty expectations, just 19 percent of retirees stayed in the workforce for that amount of time.

Whether you retire at your expected age or slightly before, however, retirement planning is essential.

What are your pension options? Can Regular Joes and Janes put aside enough money to live comfortably in their golden years? Anything is possible when you’ve got a fine-tuned retirement plan.

Read on to get a four-step overview of the pension and retirement planning process.

1. Get to Know the Different Pension Types

As a general rule of thumb, pensions come in two forms:

  • Defined contribution
  • Defined benefit

With a defined contribution pension, you, and possibly your employer, contribute a set amount of money every month towards your retirement. While this is going on, a third party, like a bank or an investment firm, will use these combined funds to purchase stocks, shares, and other assets. In a few years or decades, when you’re ready to retire, the funds available to you will depend on a combination of your contributions and your market returns.

A defined benefit pension operates a bit differently than its defined contribution counterpart. With this approach, you’ll receive a guaranteed sum every year of your retirement. Factors like the time you’ve spent in your career and the amount of money you’ve made can have an impact on this number. But there’s no beating the certainty that comes with knowing that you’ll receive a set amount of money each year.

If you’re saving for retirement through your employer, chances are that your options will fall into one of these categories.

2. Set Your Savings Goals

On paper, there’s a lot to like about being retired.

You can sleep in. You can participate in your favorite hobbies. And, if you’re ever hit with the travel bug, you can book a cruise without asking anyone for permission.

However, the reality of being retired is that you don’t have the benefit of receiving a regular paycheck. To make your fixed-income investments and dividends pay off, you’ll need to save a hefty sum of money.

CNBC reported that by the age of 67, you should ideally have 10 times your salary set aside. But for many people, this number isn’t realistic.
Regardless of your financial circumstances, however, there’s one thing that retirement planners can all agree on:

You’ll want to define your goals and set your budget accordingly.

If you’re planning to live it up in far-flung places, for instance, you’ll probably want to have a substantial amount of money saved. And if you can save a few hundred extra dollars per month, that money will seriously add up over time.

Don’t stress out by focusing on dollar amounts right away. Picture your dream retirement and then figure out how much money you’ll need to finance that lifestyle.

3. Choose Your Investment Vehicle

Between precious metals, cryptocurrency, and the tech sector, retirement planners have more non-traditional investment opportunities than ever. Even though these opportunities are available, however, they might not be the right option for your retirement fund.

Here’s why:

Cryptocurrency is known for its incredible returns. But the massive price swings mean that your retirement funds could be up 50 percent one year and down 60 percent the next. And while precious metals are known for being stable, your fund might suffer from reduced growth.

For these reasons and more, you’ll want to look for realistic returns that fit within your risk profile. The S&P 500, for instance, has an average annual return of 10.5 percent since its inception. However, the actual returns vary dramatically from year to year.

Regardless of whether you’d like to trade the market or beat it, you want an investment strategy that keeps you ahead of inflation. This is an essential part of maintaining your overall purchasing power.

4. Don’t Forget About Your Taxes

At this stage, you’ve done some napkin math. You know how much time you have to save, you’ve figured out your saving requirements, and you have a decent investment strategy at your disposal.

What could go wrong?

You could forget to factor in your taxes. And because conventional retirement planning wisdom involves decreasing your risk as you age, it could eventually be too late to go back and adjust your savings goals. If you’re already drawing down a pension, the situation becomes even more complicated.

With details like your rate of return and your post-tax income on the line, the relationship between taxes and your retirement portfolio can’t be understated. This is why retirement planning experts will often tell people to plan for retirement early. Not only does it give your portfolio more time to grow at relatively low returns — but it also gives you a chance to secure the level of after-tax income you need.

If you need more advice, places like specialize in tax-efficient retirement planning.

Here’s What You Should Know About Your Pension Options

Whether you’re a high earner, a natural saver, or someone who got started making money a little later in life, securing your pension is an absolute must. From grocery shopping to financing trips and leaving a legacy, having more money at your disposal makes it possible for you to safeguard your financial independence and retire with confidence. Being aware of your pension options is just the first step.

But here’s the good news:

Saving for your retirement doesn’t have to be complicated. All it takes is a bit of foresight and planning.

If you’ve got a lot of money and unconventional investments, you may want to speak with a retirement planning professional about the tax implications and the potential returns. Whichever way you go, however, planning for retirement is a decision that you won’t regret.

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By Manali