Retirement Planning

Retirement planning gives you pointers towards financial independence in your old age. Whether you are a fresh graduate, a small business owner, or are approaching your retirement age, taking a proactive approach can help you live a comfortable life once you stop working. Ideally, you will want a plan that is an investment tool with rewarding returns.

At Watertree Financial Wellness, we believe retirement planning is essential and aim to help individuals with retirement income planning.

Options for Retirement Income

Most people derive their retirement income in three ways:

1. Peresonal Retirement Savings & Investments

1. Personal Retirement Savings & Investments

These include your contributions to:

401(k) Retirement Savings Plan

Employers in the United States offer their employees a 401(k) retirement savings plan. They present their workers with several investment options within the 401(k) accounts. Then, the employee selects and makes monthly contributions towards one of the investment accounts. In turn, the employer matches part or all of the employee's contribution, enabling the employee to save up to twice their contribution. If it is a traditional 401(k) plan, it reduces the employee's taxable income and only taxable on withdrawal. In contrast, salary deductions towards Roth 401(K) are on after-tax income, and their withdrawals are tax-free.

What Are IRA to Roth Conversions?

IRA Accounts

Individual Retirement Savings (IRA) accounts enable you to save for your retirement over a long period. They work like 401(k) retirement savings plans. Unlike the employer-sponsored 401(k), IRA accounts are self-sponsored, excluding any involvement from the employer. That way, the employee has more investment options. Still, there is no additional contribution/employer matching.

An employee can make a 401k rollover to IRA when changing jobs. The benefits are as follows:-

  • You can diversify your investment options
  • The rollover frees you from any communication with your old employer
  • It can lower the administrative costs associated with maintaining the investment account
  • You can opt for the Roth IRA account for tax-free withdrawals
  • Take advantage of cash incentives by retirement planning services providers offering IRA accounts

Equity Savings & Taxable Brokerage Account

Equity savings and taxable brokerage accounts are ideal retirement plans for small business owners, freelancers, or independent contractors. They include investing in: -

  • Stocks
  • Tax-free bonds
  • Immediate annuities
  • Mutual funds
  • Bank fixed deposits (FDs)

2. Social Security Benefits

A person living with a disability or a qualified retiree, their spouses, children, and survivors can apply for and derive their retirement income from social security benefits. It is a comprehensive program by the federal government, issuing payments to the beneficiaries who meet the following criteria: -

  • Are a disabled person or a qualified retiree
  • Are a spouse, child, or survivor to the principal beneficiary
  • Qualify for the benefits by making contributions to the Social Security program during your working years
  • Accrue at least 40 credits with the program, or based on the spouse's work history

The amount you get depends on your age when claiming the benefits, area of birth, and earning history. These are taxable amounts of up to $3,345 per month as of 2022 to the retired workers. Hence, you may have to supplement your income if you only have your social security benefits as your source of income during retirement.

3. Pension Benefits

3. Pension Benefits

Like 401(k), corporations offer varying pension plans to their employees. Still, 401(k) is a defined-contribution plan, and pension is a defined-benefits plan. Here, a pension provides a pre-determined payment amount to the individual upon retirement. In turn, the employer bears the investment risks that arise due to any volatility in the financial markets. For this, most employers prefer 401(k) over pension plans.

Frequently Asked Questions

As you approach your retirement age:

  • Confirm from your financial advisor on the status of your retirement savings and investments. Ensure you are indeed ready for retirement.
  • Evaluate the tax implications of your upcoming retirement. Make financial decisions that minimize your tax obligations as much as possible. For example, now is the time to move houses to maximize the tax-free capital gains.
  • Diversify your mix of investments.
  • Set aside some cash reserves that will sustain you as you wait to make your first withdrawal. Indeed, pensions, social security, and other retirement plans can delay due to the necessary paperwork. Ensure you have sufficient cash in a money market account, bank savings, or a checking account to shield your living expenses for three to six months.

  • Identifying your sources of income and estimating your living expenses
  • Selecting and contributing towards a retirement investment plan
  • Managing your assets and risks associated with them

Retirement planning allows you to invest now for financial freedom when you retire. You also enjoy cost savings, tax benefits, and other incentives as you contribute to your retirement plan.

Five Steps in Retirement Planning

There are five key steps in planning for your retirement. These are:

  1. Get your timing right
    Start saving for your financial planning retirement as early as possible. Work with a financial advisor to identify the best investment options that give you the best returns. Then, retire at a time when your passive income can cater to all your living expenses.

  2. Know your financial needs
    Estimate how much disposable income you need each month or year to live comfortably in your golden years. Anticipate any changes in your expenses, including medical needs and inflation. Ideally, you want a disposable income between 70% and 90% of your current income. The goal is to sustain your current lifestyle, even when not working.

  3. Consider your other financial goals
    For example, do you want to tour the world after retirement? Or, maybe you want to get into philanthropic work. Whatever your goals, seek investment retirement services that accommodate these goals.

  4. Select the best retirement plan for you
    Weigh the pros and cons of all the retirement options you have. Pick a plan that suits you best. An experienced financial advisor can give you case–by–case scenarios for each choice to help you make a smart decision.

  5. Start investing in your retirement
    Set aside more funds when you are at the peak of your working career. It will cushion you when you lose your job unexpectedly or when the economy is struggling.


It is essential to acquire a retirement planning guide and start setting aside money for your golden years immediately after you start working. Consult Watertree Financial Wellness and speak to an advisor who can explain and recommend the best investment options for you.

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