Retirement Planning: Your Permanent Vacation

Retirement Living – What is It?

All frequent travelers have one thing in common…they know that it takes time to prepare for a good vacation.  They need to setup travel and transportation arrangements, secure lodging, and plan awesome activities and dining for when the vacation finally starts!

All in all, a good vacation happens from getting educated on the desired location, and preparing ahead of time.

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Retirement Monster

Retirement is a big monster!

Retirement can be viewed like a permanent vacation.  Everyone’s goal should be to not allow the “golden years” be thwarted by a lack of education and preparation; rather, by having everything in place, and all the bags packed (so to speak) everything will go according as planned.

Retirement is a big monster.   The industry is forever changing and there is a laundry list of terminology to learn.

Everyone deserves to have the retirement of their dreams.  The purpose of this article is to provide some basic retirement advice, tips and knowledge about retirement plans and how to get your retirement planning back on track.

Please view this article as a “launching point” to help you get started and moving in the right direction.  You can look at this like any other class in school…welcome to Retirement Basics 101.

Here is our class syllabus:

  1. Create a retirement dream (for motivation).
  2. Get financially ready to make strides at your retirement goals.
  3. Get educated on retirement plans, terminology, and FAQ’s (the meat of the subject).
  4. Execute a plan of action – a list of steps to take from here.

Let’s start planning for your permanent vacation!

Syllabus Item #1 – Create Your Dream

What is your dream vacation?

What’s your permanent vacation dream?

The first syllabus item is to create a retirement dream.  Why?  Because everyone needs to having a reason to learn about a possibly boring topic.  Also, all of us need to have a reason to wake up every morning and go to work…which is to ultimately get what we most desire… a great retirement!

One Possible Dream

For those who aren’t sure what their dream might look like, here’s one possible dream to consider:

  • A house on the beach somewhere in Florida (the white beaches are incredible.  There is a reason why there are so many retirees in the Sunshine state.)
  • You and your spouse sipping lemonades and diving into a good book in the morning.
  • Possibly snorkeling with the dolphins in the afternoon.  
  • Eating gourmet food all day long.

That sounds extremely dreamy, right?  A retirement goal like that would make anyone incredibly motivated to work hard and make sacrifices now so that they can claim that dream as reality.

What’s Your Dream?

Before planning for retirement, it may be helpful to come up with a possible retirement dream.  Why?  Because having a reason to work for a better future gives you hope…and hope will help move you in a positive direction.

So what is it?

  • Is it having some property in the mountains?
  • Become snowbirds, going back and forth to see the children and grandchildren?
  • What about a permanent houseboat on Lake Powell or to go live on an island in the Caribbean?
  • Or maybe it’s being happy and living where you are and doing what you love most.

Whatever the dream is, take a mental snapshot and keep that memory close to your heart and work towards it.

Let Your Dream Motivate You

We all have bad days… at work and at home.  A lot of us are so wrapped up in making our next house payment, feeding the kids, saving for braces, or getting the car repaired that we haven’t even had a chance to breath, let alone plan for retirement.  If you fall into this category, please know that you aren’t alone.  All of us have been there before (and we’ll probably be there again before too)!

The important thing is for you to make some sort of retirement goal and then start making small steps to achieve it.  Whatever your dream may be, let it motivate you to get educated and ready for your permanent vacation.  If you work hard and make sacrifices now, having that dream can become a reality (and maybe we’ll all end up in Florida ☺).

Retirement Infographic

Permanent vacation ideas, from others around the web. Don’t wait to create your own permanent vacation!

ACTION STEP:  Figure out your dream and write it on your heart…then write it down somewhere else.  If it isn’t written down, it isn’t a goal…it’s a wish.  Also consider cutting out pictures of your dream and keeping those close, for motivation.

*BonusFor those of you who are struggling with ideas, download our Retirement Ideas List at the bottom of this article.

Syllabus Item #2 – Get Financially Ready

Next up on the syllabus is to get positioned to start make strides at your retirement goals.  What does that actually mean?  Ideally, everyone reading this is already budgeting, saving money regularly, and out of debt (or has minimal debt that fits within their budget comfortably).

Saving for Retirement is the fourth step of becoming a Personal Money Manager for a reason.  If you are already saving money and have minimal debt (like a house), then you can focusing on putting money away for retirement.

That doesn’t mean you shouldn’t participate in a retirement program before being completely out of debt.  If an employer is willing to contribute money into a retirement account for you, then you definitely should consider participating in that program.  Free money is always great!

However, if you don’t have to focus on paying others back from being in debt, and can instead focus on paying your future self, then stashing away money each year becomes easy and instinctive… not a burden.

ACTION STEP: Get your finances in a position to start leveraging your retirement efforts.  For those who haven’t done so already, please go through the first three steps of becoming a Personal Money Manager before moving on.

Syllabus Item #3 – The “Meat” of the Subject

Retirement - Meat of the Subject

Retirement Planning – the meat of the subject.

The next item on the syllabus is the “meat” of the subject.  Getting educated about retirement planning will help you for a few specific reasons:

  1. Confusion about retirement plans and terminology will decrease.
  2. You’ll be more confident when talking to others, especially an adviser or employer.
  3. Your advisers will be better able to talk, explain things, and create a plan with you, since your knowledge about the basics have increased.

So, with that, let’s move on to the “meat” of the subject.  Remember, these are just basic principles.  The hope is that this section will help you feel more knowledgeable about retirement planning and become a place to launch your education from.

Types of Retirement Plans

401K, IRA, DC Pension Plan, and DB Pension Plan are the four common types of retirement plans.

Types of Retirement Plans

This section will focus on the four most common retirement plan options: 401(k) Plans, IRA Plans, and two different Pension Plans (Defined Contribution and Defined Benefit).

1. 401(k) Plans

Summary: 401(k) plans are employer-sponsored retirement saving plans.  These plans allow employees to contribute a portion of their paycheck into an investment account.  Employees typically have the freedom to pick from an array of investment options that the plan sponsor has chosen to include in the plan.

Most plans have two 401(k) contribution options: Traditional 401(k) plan and Roth 401(k) plan.

  • Traditional
    • Contributions are pre-tax, which lowers the employees’ taxable income in the year that they make a contribution.
    • Subsequently, the taxes will be paid when the employee withdraws money from the plan during retirement.
    • This option is perfect for those who anticipate being in a lower tax bracket in retirement, because it lowers the overall taxes that are paid.
  • Roth
    • The contributions that are made are after-tax.
    • Employees can withdraw money from the plan during retirement without paying taxes.
    • This option is perfect for those who anticipate being in a higher tax bracket in retirement, because it provides a tax free retirement.

Key Points to Remember:

  • These plans are the most widespread private-sector employer-sponsored plans in the U.S.
  • Many employers make a match contribution based on the amount the employee makes, or the amount that is contributed.
  • The government allows higher contribution limits than with an IRA.
  • There will be higher fees, due to higher administrative responsibilities.
  • There are penalties for early withdrawals.

2. Individual Retirement Accounts (IRAs)

Summary: IRAs, or Individual Retirement Accounts, are designed to do two things:

  1. Become a retirement vehicle for those who don’t have access to an employer-sponsored retirement plan.
  2. Play a complementary role to employer-sponsored plans and to help preserve rollover assets at job changes or the employee retires.

Just like 401(k) plans, IRA’s offer a pre-tax (Traditional) or after-tax (Roth) plan options.  Contributions can be made to both a 401(k) plan and IRA, but talk to an adviser about making the most of that situation.  With this plan, there is increased control over the types of investments that can be invested in; however, the majority invests in mutual funds.

Key Points to Remember:

  • These plans are relatively inexpensive and simple to start.
  • Some employers will match an employees’ contribution, but it’s not likely.
  • The government allows lower contribution limits than with a 401(k) plan.
  • Depending on the employees’ tax bracket, contributions may be claimed as tax deductions.
  • There are penalties for early withdrawals.

3. Defined Contribution Pension Plan (DC Plan)

Summary: DC Pension plans are a different type of employer-sponsored retirement savings plan.  Pension plans, by definition, are plans that require an employer to make contributions on behalf of their employees into a pool of funds that is set aside for the future benefit of its’ employees.

A DC Plan is based on a defined contribution that is paid into the plan on an employee’s behalf each year.  This is a specific dollar amount put into the account for you each year.  That amount, plus investment growth, equals the amount that is available for withdraw out of the plan.

Key Points to Remember:

  • Pension plans are becoming less common.
  • Safer financially for the employer (not based on present/future obligations).
  • Employer contributions are easily calculated and don’t rise and fall with performance.
  • Employees bear the risk of investment performance.
  • Some plans have a voluntary employee contribution component, or even an employer match.
  • Each plan is designed differently.

4. Defined Benefit Pension Plan (DB Plan)

Summary: This is often referred to as a “traditional” pension plan.  This plan provides a specific level of benefits, depending on the years of service each employee provides for their company.  For example, if you work for 30 years with your company, they will provide a $2,000 a month benefit until you die.  That is a specific level of benefit.

Key Points to Remember:

  • Provides a steady benefit after an employee retires.
  • Not as safe financially for employers (contributions are based on present/future obligations, making the amount change year to year).
  • Long-term employees are rewarded heavily.
  • Employers direct the investments, not employees.

Want to study later?  Feel free to download this part of the “syllabus” – Types of Retirement Plans.

Now that we have addressed different retirement plan types, let’s talk about some common retirement terminology.

Retirement Terminology

This is not a full terminology list.  In fact, this is a really “skimpy” list; however, a lot of the frequently asked questions are based around these terms:

Accrued Benefit

  • This is a benefit that has been earned, but not “paid” as of yet.

Actuarial Analysis

  • This is the examination of risk.
  • The analysis uses statistical models to help manage financial uncertainties.
  • Actuaries make educated predictions, in regards to future events.
  • Actuaries are used to help predict benefits for a Defined Benefit Pension Plan, for example.

Age of Retirement

  • This is the time that an employee can retire, which is technically whenever that employee chooses.
  • However, in the United States, the Social Security age for full benefits is 66 (as of Dec 2016).  Anyone can qualify for early retirement at age 62 (but at the cost of a permanent 25% reduction of benefits).


  • A fixed sum of money paid to someone each year, often for the rest of their life.
  • Can be a form of investment or insurance which will pay a series of annual sums.


  • This is a person or entity (like a trust) that YOU choose.  They will receive your assets if you die.
  • Those who have life insurance or retirement accounts, for example, can specify who gets their assets after they pass away.
  • A contingent beneficiary is a secondary beneficiary.  They receive the assets only if the first beneficiary dies, can’t be located, or refuses the inheritance.

Blackout Period

  • This occurs when major changes are made to an existing or new plan.  Can be anywhere from 3-60 days.
  • Employees are not allowed to make alterations to their accounts, or even change investment options until the blackout period is over.

Compound Interest

  • Interest that is calculated on the principal (initial amount put in) plus the accumulated interest gained.
  • Will make an investment grow at a quicker rate than simple interest (based only on the principle amount).


  • This occurs when retirement funds are sent from one plan to another.
  • This often occurs when moving retirement funds from a previous employer to a new one, or from an employer plan to an IRA.
  • Taxes won’t be owed on a direct rollover; direct meaning that it doesn’t “touch your hands”.


  • This is a legal entity, often in the form of a document, that allows you to put conditions on how your assets are distributed at the time of death.
  • With respect to retirement accounts, a trust can be named as a beneficiary of your retirement account if you pass away.  This gives you a degree of control over how the retirement assets are distributed.

Vesting Schedule

  • This is a schedule of when the employee “earns” the rights to the employer
    contributions.  Often this schedule is based on years of service.
  • This is what a vesting schedule might look like:
    • After 1 year of service = 20% of employer contribution earned.
    • 2 year of service = 40% of employer contribution earned.
    • 3 year of service = 60% of employer contribution earned.
    • And so forth.

Want to study later?  Feel free to download this part of the “syllabus” – Terminology.

Hopefully you now have a deeper understanding of some common terms.  Now on to the FAQ’s section.

Retirement FAQ’s

Here are some frequently asked questions in regards to retirement planning:

Q: How much do I need to retire?

A: This question is heavily debate.  At the end of the day, all of the math comes down to one question: how do you want to live life in retirement?  A great starting place is to think about your current lifestyle.  Is your desired retirement lifestyle going to be about the same as it is now?  Will you want more money to fulfill retirement dream?  Or maybe with the kids out of the house, you’ll need less?

Everyone that wants to live like they are today, aim to have 70%-90% of your pre-retirement annual income for each year of your retirement.  This amount will give you enough money for a good lifestyle and will also provide a buffer against the rising cost of living.  For those that want to live a more lavish lifestyle, aim for a higher percentage.  If you can get by on less, then save less.

As always, getting a financial adviser involved here is what is highly recommended; however, you can still consider the dreams that were created earlier in the article and get an estimate of what is needed and wanted, based on your lifestyle and the amount of income you want to have coming in during retirement.  As you get closer to retirement, you will have a greater ability to make the estimates more accurate.

Q: What is the average retirement savings?

A:  The May 2015 Government Accountability Office analysis discovered that the average American between the ages of 55 and 64 have accrued about $104,000 for retirement.  For those in the 65-74 age bracket they have accrued an average of $148,000.  That is not a lot; and those are averages… That report also mentions that $104,000 and $148,000 equates to $310 and $649 per month annuities, respectively.   It’s probably a safe bet that all of us want more than that each month.

Q: What constitutes early retirement?

A:  In the United States, early retirement age is any age prior to 66, as that is the age you can receive full benefits for Social Security, as well as Medicare Benefits.

Q: How to retire early?  What can I do?

A: Retiring early comes down to you being in a financially independent situation that to “self-sustain” your current and future obligations, needs, wants, and spending habits.  Becoming a personal money manager will help you to retire early.  Learn how to sacrifice now with a budget, saving money, getting out of debt, using retirement account vehicles and then investing.  All of those steps, together, will set anyone up in a position to retire early.

Q: What are the best retirement plans?

A: There is no “best” retirement plan.  The best retirement plan is the one that works with your current situation and helps to further your retirement agenda.  Each retirement plan has positives and negatives.  The worst retirement plan is the one that you aren’t actually using… when you could be.  Take advantage when you have an opportunity!

Q: When can I retire?

A:  Technically you can retire whenever you want.  No one is forcing you to work if you have the required funds to no longer be working.  However, for Social Security, the normal age to retire is 66.  Early retirement starts at 62, which results in a lower total benefit.

Want to study later?  Feel free to download this part of the “syllabus” – FAQs.

ACTION STEP: These are good questions, terminology, and types of plans to know about before diving into the retirement planning scene.  Check out the further readings below if you want to go a bit deeper with the topics we’ve discussed.

Further Readings – Retirement Education

Syllabus Item #4 – A Plan of Action

So far, we have…

  • Created a dream to help motivate your actions going forward.
  • Become financially ready (or working on it), and;
  • Learned about retirement plans, terminology and answers to common questions.

The final part of the class syllabus is to put a plan of action into place.  These final steps will help you get fully prepared to start saving for your permanent vacation.  Please use the information from this article as a launching point…now move forward, learn more, and get ready to start contributing to a retirement plan.

Here is a list of actions steps that can be taken from here to get yourself closer to obtaining your dream:

  1. Talk to your Employer – Find out if they offer a
    Retirement - Plan of Action

    A plan of action to start working on your retirement planning.

    retirement plan.  Get specifics on what type of plan it is, what they contribute, and so forth.

  2. Talk to an Adviser – Find an adviser that you trust to work through the details of your employers’ retirement plan and decide together if you should participate.  They will also give you other options to consider.
  3. Stay Financially ReadyContinue to budget, save money, stay out of debt, and consider adding to your income so that you can consistently contribute into a retirement account every year.
  4. Sacrifice for the Greater GoodBe willing to give up buying that new car this year in order to maximize your retirement contribution.  Sacrifice today for an even better vacation later.
  5. Start Contributing to Your Retirement  – Now that you have learned it; go do it.  Start contributing a portion of your income into a retirement account this year.  Don’t wait.  Let compound interest do it’s thing.

ACTION STEP: Make a commitment to yourself (and a spouse if you have one) to follow these steps and work towards your retirement dream.

Final Thoughts on How to Plan for Retirement

If you read through this article, you now understand more about the basics of retirement planning than you did fifteen minutes ago.  Don’t let retirement be scary; the reality about retirement is this:

A penny saved is a penny earned.  A penny matched is TWO pennies earned.  And pennies become more valuable the longer they sit in an account and earn interest.

Frequent travelers all typically plan out their vacations.  With retirement being THE permanent vacation, planning for it is equally important.  After working all your life, you will deserve that beach dream, or whatever other dream you come up with.  

Write that dream on your heart and then go to work!  It is worth skimping, saving, and sacrificing to attain that goal.  Meet with your employer and then talk to an adviser to get financial advice.  Set up a retirement fund if you haven’t already done so.  Even a small contribution every year will multiply and grow.

Managing money is one of many key life skills that put YOU in control…and once you have that control, then you truly have POWER OVER LIFE!

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Bonus Items

Retirement Savings Calculator & Other Helps

There are a lot of great retirement planning calculators and other helps on the internet these days, so we didn’t want to “re-create the wheel” here and build our own.  Here are some resources that are extremely helpful:

Retirement Ideas List

Create your dream by checking out some of common retirement ideas in the Retirement Ideas List.  This is an activities and location based idea generator.  There are lots of things to do during retirement!

The Complete Syllabus

Feel free to download the entire Retirement Basics 101 Class Syllabus.  Use it to teach your spouse, family or a friend (or a class for that matter).


If you enjoyed our article, feel free to download the condensed version.  Also, check out some more from Power Over Life!

Retirement Planning: Your Permanent Vacation
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Retirement Planning: Your Permanent Vacation
Retirement planning is a key life skill to help you succeed in life. Learn about your permanent vacation, Types of plans, terminology & FAQs. LEARN MORE HERE.
Jacob Merkley
Power Over Life
Power Over Life
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