Retirement planning is one of those topics that many people know is important but often push to the side. When you’re working, earning income, and managing the day-to-day responsibilities of life, retirement can feel far away. However, just like budgeting and debt management, retirement planning is one of those things that becomes much easier the earlier you start. Waiting too long can create unnecessary stress and financial strain later in life.
Planning for retirement isn’t just about saving money. It’s also about understanding how long you have to invest, setting clear financial goals, estimating how much you’ll need, and preparing yourself mentally for a completely different phase of life. Let’s walk through some of the significant elements that go into building a solid retirement plan.
Start with Your Time Horizon
Your time horizon is how many years you have until retirement, or, another way to think of it, when you will start taking withdrawals from your retirement accounts. This should be the first thing you consider. Someone in their 20s may have 35-40 years to invest, while someone in their 50s may only have 10-15 years. Time is powerful because of compounding. Starting earlier allows investments more time to grow and recover from market fluctuations. Your time horizon will influence how aggressively you can invest. Longer time horizons typically allow for more growth-oriented investments.
Prioritize Your Financial Goals
Retirement is a major financial goal, but it is rarely the only one. Many people are also saving for a home, paying off debt, or supporting family members. A helpful way to organize your finances is by separating goals into short-term, medium-term, and long-term priorities. Retirement should remain a focus because it is one goal that generally can’t be financed later through loans.
Determine How Much You Need
Once you understand your timeline and priorities, the next step is estimating how much money you will need in retirement. A common rule of thumb is that people in retirement may need roughly 55-80% of their pre-retirement income each year to maintain a similar lifestyle. Another method is the rule of 25 or the 25x rule. This rule states that you can estimate your annual retirement spending by multiplying your current annual spending by 25. While these numbers will vary by individual, having a rough target helps guide your saving and investment strategy. While rules of thumb like 55–80% or the 25x rule are helpful starting points, they can miss important details. Sometimes a more practical approach is to build a plan from your actual current spending and then adjust that for how your spending will change in retirement.
For example, a household reviews the last six months of bank and credit card data and calculates its average monthly pre-retirement spending:
| Pre-Retirement Spending | |
| Fixed Expenses | Variable Expenses |
| Rent: $1,800 | Groceries: $700 |
| Insurance: $300 | Dining and entertainment: $600 |
| Utilities: $200 | Travel: $400 |
| Commute to Work: $300 | HealthCare: $300 |
| Total Fixed: $2,600/month | Total Variable: $2,200/month |
This brings their total current spending to $4,800 per month, or $57,600 per year. Next, they adjust these numbers to reflect what retirement might actually look like:
| Post-Retirement Spending | |
| Fixed Expenses | Variable Expenses |
| Rent: $1,800 | Groceries: $700 |
| Insurance: $300 | Dining and entertainment: $400 |
| Utilities: $200 | Travel: $800 |
| Commute to Work: $0 | HealthCare: $700 |
| Total Fixed: $2,300/month | Total Variable: $2,600/month |
- Commuting costs are eliminated, reducing expenses by $300 per month
- Travel increases to $800 per month as they plan to take more trips
- Dining and entertainment decrease to $400 per month
- Healthcare costs increase to $700 per month
This results in a new estimated retirement budget of $4,900 per month, or $58,800 per year. The key takeaway in this example is that retirement spending is not necessarily lower or higher than your working years, it’s different. Some expenses disappear, some increase, and using real data helps you build a more realistic estimate of your future spending.
Account for Other Sources of Income
After you estimate how much you’ll need in retirement, the next step is understanding how much of that will need to come from your own savings versus other income sources. Many retirees receive income from pensions, Social Security, or other sources, which can reduce the amount they need to withdraw from the investment portfolio. For example, if you estimate you’ll need $70,000 per year in retirement and expect $50,000 from pensions, Social Security, or rental income, your investments need only generate the remaining $20,000 per year. This is important because it directly impacts how much you need to save and how aggressively you need to invest.
Understand How Your Investments Grow
Retirement savings typically grow through long-term investing. Historically, equity portfolios have generated average returns of 7-10% annually after inflation, although actual results will vary. Even small differences in return can have a significant impact over decades, which is why consistent investing and long-term discipline are so important.
Plan When You Will Need the Money
Retirement savings are usually withdrawn gradually over many years, not all at once. Many retirees spend more in the early years on travel and hobbies, while later years may bring higher healthcare costs. One commonly referenced guideline is the 4% rule, which suggests withdrawing roughly 4% of your portfolio annually as a starting point for sustainable retirement income. However, this depends on a multitude of factors and is highly specific to the individual.
The Behavioral Side of Retirement
Retirement planning isn’t only about money; it also requires mental preparation. Many people spend decades focusing on saving, and once retired, they find it difficult to begin spending their savings. It’s very common for retirees to underspend, even when they have more than enough resources. Remember that retirement savings are meant to support your lifestyle, experiences, and well-being during this stage of life.
Final Thoughts
Retirement planning is an ongoing process that evolves throughout your life. Along with financial preparation, there is also a need to shift our mindset by the time retirement comes around. By starting early, investing consistently, and setting clear goals, you can build a plan that supports both financial security and a fulfilling retirement.
DISCLOSURES
The information provided is for educational purposes only. The views expressed here are those of the author and may not represent the views of Leo Wealth. Neither Leo Wealth nor the author makes any warranty or representation as to this information’s accuracy, completeness, or reliability. Please be advised that this content may contain errors, is subject to revision at all times, and should not be relied upon for any purpose. Under no circumstances shall Leo Wealth be liable to you or anyone else for damage stemming from the use or misuse of this information. Neither Leo Wealth nor the author offers legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results.
This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.
