What it means
A human planner usually starts by gathering the facts. These include your age, income, savings, debts, expected pensions, health and the lifestyle you want.
From these the planner estimates how much income you will need and compares it with what you are on course to have. The gap between the two numbers drives the plan.
If there is a shortfall, the options are to save more, work longer, spend less in retirement or earn a higher return by taking more risk. A planner shows the trade-offs among these choices so you can decide which ones you can live with.
Planning software and online calculators do a similar job at lower cost. They ask for a handful of inputs and apply assumptions about investment returns, inflation and life expectancy.
The weakness is that the results depend on those assumptions, so a slightly optimistic setting can make a weak plan look strong. When hiring a professional, ask how they are paid.
Some charge a flat fee or hourly rate, some take a percentage of the assets they manage and some earn commissions on products they sell. Each model carries different incentives, and it is sensible to prefer an adviser who is legally required to act in your best interest.
Planning is not a one-off task. Markets move, salaries change, families grow and health shifts, so the plan should be reviewed at least once a year.
The more flexible the plan, the better it copes with surprises. For employers, offering access to a planner is an inexpensive benefit that staff value highly.
It also tends to improve the quality of decisions about when to leave, which helps with workforce planning.
In practice
Real-world examples.
Example
A 45-year-old engineer uses an online retirement planner and discovers that his current savings will cover only 55% of his target income. He raises his monthly contribution by $400 and the tool shows that the gap closes to 80%.
Example
A couple meets a fee-only retirement planner who charges a flat $2,500 for a complete plan. The planner shows them that delaying retirement by two years would raise their sustainable income by a meaningful margin. The couple leave with a written action list and a date for a review meeting.
Example
A company offers staff a retirement planning workshop led by an external adviser. Employees leave with a one-page worksheet showing how much to save each month to reach their target. Staff can book a short follow-up session with the adviser if their situation changes.
Formula
Calculation
Income replacement ratio = Desired retirement income / Final annual salary
Savings target = (Desired income - Guaranteed income) / Withdrawal rate
Suppose a manager earns $100,000 a year and wants to replace 70% of her income in retirement. Her desired income is $100,000 x 0.70 = $70,000. If pensions and government benefits will provide $30,000, the gap is $70,000 - $30,000 = $40,000. At a 4% withdrawal rate the savings target is $40,000 / 0.04 = $1,000,000.Case study
Seen in the real world.
Linden Park Engineering is an illustrative, fictional firm that noticed many of its senior engineers were delaying retirement because they were unsure whether they could afford to stop. The human resources team worried about succession and lost opportunities for younger staff.
The firm paid for an independent retirement planner to offer each senior engineer a confidential session. Each person left with a projection of income, a list of risks and a suggested date for stopping, and several were relieved to find they were in better shape than they had feared. Others learned they needed to save more and used the session to set a firm monthly amount.
In this fictional case eight engineers chose to retire on a planned schedule over three years, and the firm had time to train successors. The illustrative lesson is that good planning gives people confidence to make decisions, which benefits employees and employers alike.
Watch out
Common mistakes.
- Relying on a calculator's result without checking the assumptions about returns, inflation and life expectancy.
- Hiring a planner without asking how they are paid and whether they act in your interest.
- Making a plan once and never reviewing it as circumstances change.
Questions
People also ask.
What should I bring to a first meeting with a retirement planner?
Bring statements for your savings, pensions and debts, details of your income and spending, and a clear idea of when and how you want to retire.
Is a retirement planner the same as a financial adviser?
Often the roles overlap, but a retirement planner specialises in the move from working to retired life, while a general adviser may cover insurance, investments and tax as well.
How often should I update my retirement plan?
At least once a year, and also after big events such as a job change, a house sale, a marriage or a market crash.
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