Retirement is coming. Whether you are just starting your career, or rounding the corner toward the end of it, eventually retirement will be upon you. As you contemplate retirement, there are some things to think about to ensure a happy retirement.
While many planners recommend you do your planning with a percentage of your income I find this approach harder to achieve a realistic amount of money that you need saved, especially if you are within ten years of retirement. Just because you retire does not mean that life gets cheaper, in fact researchers have found the opposite it stays the same or goes up. Instead look at your real expenses that you have today and then add in new expenses you may encounter such as extra golf and subtract out those that are no longer needed such as dry cleaning. Use this estimate to plan your money needs for retirement.
Still more than 10 years from retirement? This is when it is easier to use a percentage of income as lots can change in-between now and retirement. The percentage will at least give you a target yearly amount to save for. I would however recommend instead of saving 70% aim for 90% or higher.
For many people health care coverage from an employer disappears after retirement, unfortunately this is also typically the time that your health care costs increase. Decide what type of health insurance will be right for you and factor that into your monthly bills. If you are within a few years of retirement you should call and get quotes from some companies so you know exactly what to expect. If you are lucky enough that your company still covers health care, still check to make sure the benefits are the same so you can make plans if it is different.
Your goal during retirement should be to have no mortgage. Your house is one of your largest expenses; if this is paid off it makes it easier to retire with less money. If you still have a mortgage you should come up with a plan to eliminate this before retirement. If you are going to retire with a mortgage make sure you are happy with your rate and that you have budgeted in the full expense of running a home including upkeep costs. It is much easier to take out a mortgage while you are working than when you don’t have a regular income coming in.
At least once a year you should check to make sure you are still on target to be able to retire with enough money. Once you are within 5 years you may want to do this more than once a year to make sure you are on track and have all your funds in the right type of account. For more information on knowing what to save I wrote an article on determining what your retirement needs are.
In addition to looking at your savings and expenses you also need to see if your retirement income and projected income from Social Security will be enough to cover what your savings does not cover. If you are receiving a pension your HR should be able to help you with this information. For Social Security you can check out their online estimator! Knowing how much extra you have coming in will help you plan how much you do need to save.
The strategy you use for investing for retirement and the strategy you use during retirement are different. During your savings years it is more important to focus on growth, but during retirement you need to balance growth with income and preservation. This means the closer you get to retirement the more you need to have in more conservative investments. Here is a link to my favorite allocation chart to help you figure out where you should have your funds! The only change I would make is that depending on the person’s asset size, other sources of income, expenses and risk tolerance I would consider having 2 years of expenses in cash so you don’t have to touch your investments during a down period.
Review your estate plan and if you haven’t already, update your will and trust. If you don’t have a will or trust, now would be the ideal time to get them. While these documents may seem morbid while you are alive, they will provide help in protecting your assets in the event something should happen to you. Having these documents will also help to delegate who receives what benefits when you pass on.
As you get older you will want to consider buying long term care insurance. This can be a life saver for your nest egg should you or your spouse need to have nursing home care. The cost for quality nursing home care will quickly eat up money and if the first person uses it all, then the remaining spouse will be hurting for money. Consider purchasing this insurance between the ages of 55 and 60, and work with a high quality agent as this industry is going through a lot of changes.
Decide how you plan to spend your time after you retire. What you intend to be doing will have a big impact on the money that you need to have set aside. Using your plans for retirement plus your current expenses you can come up with an estimate on how much you need to plan for your income needs.
Still more than 10 years away from retirement? This is still an important step because it will greatly impact how much you need to have saved. Big plans to travel the world will require more money than plans to babysit the grand kids.
Retirement can be an extremely emotional time. One of the best ways to deal with retirement is having that plan we just talked about. You are going from having highly structured days with work goals and responsibilities to having days to do whatever you want. Without a plan you will begin to go stir crazy. While you can make large plans, it can also be as simple as planning to get up and go to the gym, golf on Wednesday and lunch with your friends on Friday. Expect some hard days and if need be consider a retirement counselor or coach.
Retirement is a process, a closing of one chapter and the opening of another. It is by no means the end. Take your time, explore your hobbies and passions, and see if there is something you want to enjoy for the rest of your life. (Need help though the transition of retirement? coaching can help you figure out what you want to do and who the new you is!)
By consistently reviewing the above items you will reach your retirement years with lots to look forward to and hopefully few stressors to get in the way.