Whether your potential retirement date is just a few years away or decades away, there are multiple components that you need to take into account as you do your planning. Each of these items influences how much money you need during your retirement and what kind of accounts will best serve your financial needs.

Question 1: Do you want to retire early?

If you plan to retire before you are 59.5 years of age, you may need to make changes to your investment strategy. Both traditional individual retirement accounts (IRAs) and 401(k)s usually require that investors be 59.5 years old before they start taking distributions; should you decide to take money out earlier than 59.5 years of age, be prepared to pay a 10 percent early withdrawal penalty.

Fortunately, you have options if you want to retire early. One alternative is to use a Roth IRA for some of your retirement savings. As long as your Roth IRA has been open for five years, you are permitted to withdraw the contributions at any time without having to pay taxes or penalties on the money. However, you cannot withdraw the earnings in the account without penalty until you are 59.5 years of age. 

For example, if your Roth IRA consists of $100,000 in contributions and $50,000 in earnings, you can take the $100,000 out whenever you want, making this type of account an excellent way to assist with early retirement expenses.

Another alternative is to purchase an annuity with some of your savings. An annuity provides you with a predictable monthly payment that you can use to cover your expenses. You can purchase an annuity and begin receiving payments immediately (an immediate annuity), or you can defer the payments and allow your money and the future payments to grow (deferred annuity).

Question 2: Do you plan to pay all of your debt off before you retire?

Decide if you want to pay off all of your debt before you retire, or if you are comfortable having debt in retirement. There is no single correct answer as to whether or not you should pay your debt off before retiring. Some individuals prefer to be debt free so that their monthly expenses are lower, but others prefer to carry debt at low-interest rates so that they can use their cash for investments that potentially yield a higher return.

If you know that you will have debt payments in retirement, make sure that your estimated income is enough to comfortably shoulder those payments. Contact your local retirement planning services for more information and assistance.