Money is an important part of life. It may even feel like much of the world revolves around it. It can be a common source of stress, frustration, and confusion. Like many things in life, a little planning and a little education can go a long way. That’s why financial planning is important. Financial planning is for you, no matter your stage of life, amount of money, or financial goals.
What is financial planning?
We need to understand what financial planning is before we can understand why it’s important or how it can be useful for retirement and senior living.
By definition
A financial plan outlines a person’s current circumstances and long-term objectives and establishes the spending, saving, and investing strategies that will help achieve those objectives.
Another Way to Think of Financial Planning
You might find it helpful to think about financial planning as it’s separate parts – financial and planning. Think about all your financial resources. Consider things like cash, assets, and investments. Now, think about what you want in life now and in the future. Consider how you’ll get there. Your plan for making it happen. In a loose sense, this is your financial plan.
Why is financial planning important?
Financial planning can help us reach our goals in life. Whether it’s going to college, starting a family, buying a house, traveling the world, owning a business, retiring, or something else that’s important to you, it takes financial planning to be successful.
Remember what financial planning is. It’s all about your goals. That’s exactly why it’s so important. Financial planning can help you decide what your goals are, based on what matters most to you. Then, it can help you create a plan for how you can reach those goals.
Financial Planning Tools for Retirement
Retirement is one of the most common life goals. Nearly everyone dreams of retiring some day. But, it’s also one of life’s most expensive goals. You might spend most of your life working to save for retirement.
Financial planning is incredibly important for retirement. It’s never too early or too late to plan for retirement. Even if you’re already retired, you still need a financial plan to make sure you’re able to cover your expenses each year. There are countless ways you can plan for retirement. What will be best for you and your situation is as unique as you are. However, there are two primary financial planning tools used for retirement – 401(k) and IRA.
401k
A 401(k) is one of the most well known types of retirement accounts. One of the things that makes it unique, compared to other retirement tools, is that it is tied to your employer. You may see it offered as an employee benefit. Many times, your employer will also match some of your contributions, so your account grows more quickly.
You contribute to your 401(k) directly from your paycheck since it is connected to your employer. It works similar to paying for your health insurance through your paycheck. Your contribution is made pre-tax, which means you don’t pay taxes on the money you contribute. This can lower your overall taxable income each year.
The money in your 401(k) is invested so it continues to grow. Eventually, when you retire, you can begin withdrawing money from your account. As you withdraw money from your account, you’ll pay regular income tax on it since you contributed to the account pre-tax.
IRA
An IRA is an Individual Retirement Account. It’s one of the most common, and easiest, tools you can use to plan for retirement. Like a 401(k), you make contributions to the account and eventually withdraw the funds in retirement. But, that’s where the similarities end.
Unlike a 401(k), your IRA is not connected to your employer. It’s a private account that you open on your own. Likewise, you don’t make contributions directly from your paycheck. You choose to make contributions on your own, from your bank account, after you have already paid tax on your income. Your IRA account also has a much lower annual contribution limit than your 401(k). In 2025, the 401(k) contribution limit is $23,500. In comparison, the IRA contribution limit is only $7,000.
There are two types of IRAs, each with unique characteristics. Especially where taxes are concerned.
Traditional IRA
With a traditional IRA, you can use your contributions as a tax deduction. Essentially, this gives you back the taxes you paid on that income. However, this means you will need to pay income tax when you withdraw the money in retirement. Both a traditional IRA and a 401(k) also have a required minimum distribution (RMD) which requires you to withdraw minimum amounts each year beginning when you’re 73.
Roth IRA
Unlike a traditional IRA, contributions to your Roth IRA are not tax deductible. You contribute to the account post-tax and do not receive any tax benefits for contributing. However, once you retire, your withdrawals are tax-free. Your Roth IRA also doesn’t have a required minimum distribution (RMD). So, you can use it when and if you choose.
Financial Planning for Senior Living
You may feel like senior living is one of the largest and most unpredictable expenses of retirement. But, financial planning can help with this, too. Like many things in life, it’s better to be overprepared than underprepared. For senior living, that means planning for the expense even if you don’t think you will want or need it.
If you know you want to move to a senior living community some day, especially for independent living, great! You can easily plan ahead to make this part of your financial planning for retirement. If you don’t think you’ll want to do this, that’s okay too. That doesn’t mean senior living shouldn’t be part of your retirement plan, though.
Even if you don’t think you’ll plan to move to a senior living community, there may come a day when you need to. Sometimes, circumstances and needs change, and senior living becomes the best choice. Someday you may find that you need assisted living, memory care, or skilled nursing care. If senior living is part of your financial planning, you can rest assured that you’re covered. You can be less worried about what senior living costs and more focused on choosing the community that’s the right fit for you.
Hear from a Financial Planning Expert
Financial planning is confusing. Especially for retirement and senior living. We’ve barely scratched the surface of what it is, why it’s important, and how it can help you live the retirement of your dreams. That’s why we rely on experts to help. In this episode of Senior Living Today, financial planner Connie Costanzo offers you her expert advice on maximizing your savings and having the retirement you dream of.
The Ohio Masonic Communities has three senior living communities across the state of Ohio – Browning Masonic Community in Waterville, Ohio, Springfield Masonic Community in Springfield, Ohio, and Western Reserve Masonic Community in Medina, Ohio. If you are interested in learning more give us a call at 1 (877) 881-1623 or contact us here.