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Feature Article

This article is part of the Missouri Saves Program

Retirement Planning Basics

Joyce Cavanagh, Ph.D., Former Consumer & Family Economics State Specialist, College of Human Environmental Sciences, University of Missouri Extension

Have you started thinking about your retirement and don't know where to begin? How much money will you need to retire comfortably? Are you wondering how taxes will affect your retirement savings? The following information can help you begin planning for your retirement.

How much money do I need to retire?

There is no absolute answer to this question-it differs for each person. Some factors to consider are:

  • Housing: Where will you live? Same location? Will you rent or own?
  • Travel: Will you take fewer trips? Will you fly?
  • Social: What hobbies will you have? How will you spend your spare time?
  • Transition process: Will you work part time?
  • Family: Will you still have dependents (children, grandchildren, etc.)?
  • Medical: Do you anticipate large medical bills due to a current medical condition? Is there a family history of disease or illness?
  • Sources of income: Will you have a pension or retirement plan? Personal investments/savings? Social security (see to request a benefits estimate)? Part time employment? Other sources?

You can estimate what you need to save by completing the Ballpark Estimate Worksheet produced by the American Savings Education Council (

When do I begin saving for retirement?

Now! The sooner you begin saving, the more your money can grow because of compounding interest and deferral of taxes. It's never too late to start, but the sooner you begin, the better chance you'll have of meeting your retirement goals.

For example, Tom invests $2,000 per year for nine years beginning at the age of 22 at 9% interest. After that time, he invests no more. When he retires at age 65, he has $579,471. Harry, on the other hand does not begin investing until the age of 31. For the next 35 years, he invests $2,000 per year. At the age of 65, he only has $470,249.

Obviously, you can see the effect of starting to save early for retirement. However, don't despair if you were not an early saver. Begin today, at whatever age, to plan for your retirement needs.

How do I begin saving?


  • Pay yourself first! Set aside a certain percentage from each paycheck to invest in your retirement fund. If possible, have money automatically withdrawn from your paycheck or account each month (For additional information on saving, see Getting Started Saving.)
  • Know your options. Find out if your employer offers any retirement plans and if they match money that you contribute. There are other options such as Individual Retirement Accounts (IRA). Be aware that there are limitations on the amount that can be put into an IRA.
  • Don't withdraw early from your retirement funds for other uses. It will be difficult to replace those funds at a later time and you will suffer a great loss in compounding interest. Also, you will have to pay a steep penalty for early withdrawal.
  • Consider tax implications. Most retirement investments are either tax-deferred or tax-exempt. On a tax-deferred investment, you will not pay taxes until you withdraw the funds. On a tax-exempt investment, you will not ever have to pay taxes. If you can delay taxes (or not pay them at all) your money can grow at an even faster pace because nothing is being withdrawn.



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Last update: Tuesday, May 05, 2009