Playing a round of golf whenever you want…
Traveling to those exotic destinations you’ve always dreamed of…
Spending precious time with grandchildren…
Those are all the things most of us think of when we think of retirement.
But being ready to retire means more than just reaching a certain age or renewing your subscription to Travel & Leisure.
You need a plan.
And with the current economic conditions, it better be a good one.
There are three things you need to seriously consider when planning for your golden years of retirement:
1. When you stop working, how much will your annual income be?
2. What will your monthly expenses be when you retire?
3. If you don’t have enough income to pay your monthly expenses, will you have enough money saved to make up the shortfall?
Here’s how to arrive at your answers to these questions:
First, get an estimate of your Social Security benefits. Next, look at your monthly pension benefit and any income you expect to receive from annuities or other investments such as annuities. Compare what your monthly benefits would be if you retire at age 62, 65, 67 or 70. Then decide if waiting for a later retirement date would be worth the extra money each month.
You need to decide what you really (really) need to retire. That means taking a cold hard look at what is a necessity and what is a luxury. The basics would be housing, healthcare, food, transportation, personal care and insurance. Decide what you can actually afford to pay in order to maintain the essentials. Be conservative but be realistic. Don’t tell yourself you can live on macaroni and cheese and hot dogs when you know you’re not really going to do that.
Remember that anything beyond the six categories named above is a discretionary expense. While you may have dreamed of traveling to exotic locales or playing golf at Augusta, those things aren’t necessities. Traveling to see the grandchildren once a year could be seen as something of a necessity; a photo safari in Africa is not.
Making Up The Shortfall
In a perfect world, your Social Security and income from pensions or investments will pay all your expenses and give you a little extra cushion to make life comfortable. Unfortunately, that’s more likely the exception than the rule unless you’ve been exceptionally good at saving and started planning for retirement early on in your working career. You will more than likely need some extra income to provide for anything beyond the necessities.
And that’s where many people get into trouble. They convince themselves that they can live more modestly than they really can and retire too soon. When reality sets in, they start making withdrawals from their investments and retirement plans and spend entirely too much. They run out of money before they run out of time. Never put yourself in a position to have to withdraw more than 4% or 5% per year from your investment portfolio.
The Hard Choices
Once you’ve crunched the numbers, you may find that your retirement goals need to be modified. You may need to work longer, move to a less expensive house, or consider taking a part-time job to make up the difference in what you have and what you need. Bear in mind that everything may not go according to plan. You may develop health issues and that may mean retiring sooner than you expected to.
The best thing you can do for yourself and your family is to start planning now to handle what the future may bring.
Call us. We can help you get connected to the right professionals to develop a sound retirement plan.