Investing for Retirement: 3 Simple Steps to a Secure Retirement - Chartpat (2024)

FAQs

What are the 3 important components of every retirement plan? ›

A good plan isn't just about the size of your nest egg. It's also about how you manage these three things: taxes, investment strategy and income planning.

The 3% rule in retirement says you can withdraw 3% of your retirement savings a year and avoid running out of money. Historically, retirement planners recommended withdrawing 4% per year (the 4% rule). However, 3% is now considered a better target due to inflation, lower portfolio yields, and longer lifespans.

The buckets are divided based on when you'll need the money: short-term, medium-term, and long-term. The short-term bucket has easily accessible money, the medium-term bucket has money in things that generate income, and the long-term bucket has money in things that grow over time.

As Tingom sees it, "A proper retirement plan includes three things: a financial plan, a budget, and a FUN plan! The fun plan includes things that they want to do, places that they want to visit, and how much money is included in the budget for those things."

Today it centers around four pillars — health, family, purpose and finances. Thought and action about each of these pillars can help in achieving your ideal retirement.

One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.

Safe Withdrawal Rate

Using our portfolio of $400,000 and the 4% withdrawal rate, you could withdraw $16,000 annually from your retirement accounts and expect your money to last for at least 30 years. If, say, your Social Security checks are $2,000 monthly, you'd have a combined annual income in retirement of $40,000.

Many retirees fall far short of that amount, but their savings may be supplemented with other forms of income. According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.

Ramsey also suggested people use one mathematical formula to aid in their savings plans: investing 15% of their household income in retirement. Ramsey found that people who invest 15% of their income in tax-advantaged retirement accounts frequently reach the million-dollar mark in less than 20 years.

What is the high three retirement formula? ›

High-3: If you entered active or reserve military service after September 7, 1980, your retired pay base is the average of the highest 36 months of basic pay. If you served less than three years, your base will be the average monthly active duty basic pay during your period of service.

Defined contribution plans: These are now the most common type of workplace retirement plan. Employers set up these plans, such as 401(k)s and 403(b)s, to enable employees to contribute to an individual account within the company plan — typically via payroll deduction.

Most early retirement offers include a severance package that is based on your annual salary and years of service at the company. For example, your employer might offer you one or two weeks' salary (or even a month's salary) for each year of service.

Social security, employer-sponsored plans, and individual savings are all important sources of retirement income.

The "three-legged stool" was a retirement terminology from the past that many financial planners used to describe the three most common sources of retirement income for a retiree during retirement - Social Security, employee pensions, and personal savings.