Planning for the new retirement in five steps
Retire
Planning for retirement isn’t what it used to be. The good news? We’re living longer. The not-so-good news? Inflation is at historic levels, and healthcare costs continue to increase. What does that mean? You need to save more for retirement than your parents did. Follow these five tips to help make your future a good news story.
1. Save as much as you can
Saving for your future means you also have to save for today.
Saving for today means setting aside money in an emergency savings account so that if the unexpected happens, you don’t have to take a loan, use your credit cards, or take from your retirement savings.
Saving for your future means setting aside enough money to cover all your living expenses in retirement. Your retirement planning can include a variety of accounts, including some that give you tax-related advantages.
Different types of accounts help you save for different purposes
Availability of funds |
Tax arrangements |
Account types (examples) |
Saving for today |
Taxable accounts |
General savings and investment accounts |
Saving for healthcare expenses today and in retirement |
• Pretax saving • Tax-free withdrawals for qualified healthcare spending |
Healthcare spending account (HSA) |
Saving for retirement—taxes and penalties apply to early withdrawals |
• Pretax saving • Taxable withdrawals |
• Traditional 401(k) • Traditional IRA |
Saving for retirement—taxes and penalties may apply to early withdrawals |
• After-tax savings • Tax-free withdrawals |
• Roth 401(k) • Roth IRA |
When you’re putting together your saving strategy, consider these three priorities:
- Emergency savings - You’ll want to save up to three to six months’ worth of living expenses.
- If you have an employer-sponsored retirement plan such as a 401(k), save enough to get your employer's match if they offer one.
- Try to maximize your annual contributions to your employer-sponsored retirement plans IRAs, and HSAs.
2. Invest for the long term
Saving for your future means you also have to save for today.
When you invest your money for a long-term goal—like retirement—you’ll want to understand five key concepts.
Risk—All investments have an element of risk. Generally, the greater the potential for growth (reward), the greater the risk.
Time—How much time you have until retirement is a key consideration in the types of investments you choose. Generally, the closer you are to retirement, the less risky your overall investments should be.
Asset classes—Retirement plans generally offer three basic types of investments, also known as asset classes: Cash is the most conservative, bonds are moderate, and stocks are the riskiest.
Mixing it up—Investing in a combination of asset classes can help you balance risk and potential reward, and the recommended mix changes over time. This is called a glide path—the risk profile of your investments should glide from more aggressive to more conservative as you near and live through retirement.
Stay the course—When you invest for the long term, stay focused on the long term. The stock market may go up and down periodically, but historically, the average return has remained positive. Try not to get spooked by short-term changes when you’re invested for the future.
3. Figure out your spending needs
Your spending needs change over time, too, which will affect how much money you’ll need to save for retirement. For example, you’ll trade work-related expenses for leisure-related expenses. So imagine what you’ll be doing and which expenses will be new, which will increase, which will continue, and which will end.
Changing expenses in retirement
New/increasing |
Continuing |
Ending/decreasing |
Travel, leisure, entertainment |
Mortgage/rent |
Commuting |
Second home |
Car payments |
Dry cleaning |
Healthcare, insurance |
Groceries and utilities |
Retirement contributions |
4. Identify and close the gaps
Once you’ve determined how much you’ll need to have available when you retire, take a look at your retirement accounts. Are you on track to have enough saved? If not, there are a few things you can do today to help close the gap.
- Look at your retirement spending budget: Are there places you can cut back?
- Can you save more today? Even another 1% this year adds up over time. See if you can save an additional 1% every year. In 2022, you can save an annual maximum of $20,500 in a 401(k), 403(b), or profit-sharing plan, and $6,000 in an IRA.
- Are you over age 50? If so, you’re eligible to contribute even more to your tax-advantaged retirement plans—such as your 401(k) and IRAs. You can save an additional $6,500 in your 401(k), 403(b), or profit-sharing plan, for a total annual contribution of $27,000, and you can save an additional $1,000 in an IRA, for a total annual contribution of $7,000.
- Take a look at your investments. How are they performing? Are they still the right mix to help you reach your goals?
5. Create a plan to draw down your savings
When you reach retirement, you need to change from a saving strategy to a drawdown strategy: How will you withdraw your savings to fund your spending and last through all your retirement years?
If you have a variety of accounts—some taxable and some not taxable—experts recommend that you withdraw from a combination of account types. This may enable you to smooth out your income and keep from increasing your tax rate.
Don’t forget about Social Security. When you decide to start receiving payments can make a big difference in the amount you receive monthly. Generally, the longer you wait, the larger your monthly benefit.
You’ll also need to learn about and sign up for Medicare, to help cover your healthcare expenses. Even if you don’t intend to start using Medicare yet, you must enroll the month before you turn 65.
Planning for retirement: do it yourself or get help from an expert?
Saving and planning for retirement are tasks you can do on your own, with self-help tools and resources you can find online. But it can get complicated, so you may want to get help navigating the planning, investment, and tax implications of saving, investing, budgeting, and drawing down your money in retirement. A financial professional can help guide you through the stages of your financial life, craft a financial plan just for you, and offer investment advice along the way.
Financial planning and investment advice are provided by John Hancock Personal Financial Services, LLC (JHPFS), an SEC registered investment adviser. Diversified portfolios and asset allocation do not guarantee profit or protect against loss. Nothing on this site should be construed to be an offer, solicitation of an offer, or recommendation to buy or sell any security. Before investing, consider your investment objectives and JHPFS’s fees. JHPFS does not provide legal or tax advice, and investors should consult with their personal legal and tax advisors prior to purchasing a financial plan or making any investment. Investing involves risks, including the potential loss of principal, and past performance does not guarantee future results.
NOT FDIC INSURED. MAY LOSE VALUE. NOT BANK GUARANTEED.
PI-R 324612-GE 04/22 324612