Planning for Your RetirementSarah Schanneman
How to find the best way to start your life's final race.
Posted December 28, 2012
Preparing for retirement is in some ways like nearing the finish line in a marathon: after decades on the job, the end is finally in sight. In fact, that finish line is really the starting line in a different kind of race—in order to run it successfully, you have to plan for it. And in order to plan for it successfully, you have to understand what kind of race it’s going to be.
Hopefully, you’ve been planning for your retirement for awhile already. Too many people, though, never give enough thought to what kind of retirement lifestyle they want to lead. Will you live entirely off your investments, or do you want—or will you need—to still work? Will you lead an active retirement, or settle down to a quiet life? How long do you (and your spouse) expect to live? Do you anticipate any potentially expensive health problems? And finally, what kind of legacy do you wish to leave?
Here are some things to consider on the way to your retirement starting line.
1. Decide on a retirement lifestyle
Retirement often forges big changes in life. Rare is the individual who simply leaves his job and returns to the same home and the same lifestyle as before, simply replacing his work hours with more of what he does in his leisure time. For many seniors, retirement means an entirely new life.
For instance, will you be staying in your present home, or moving to an active retirement community? Doing so usually means selling one house and buying (or possibly renting) another—and that prospect can either save or cost money. Active retirement communities have several advantages over your present home in a traditional neighborhood—notably the fact that they’re designed for retirees from the ground up—but they’re not for everyone. A 55+ community may be in your future, or you may be too attached to your present home and circle of friends to pull stakes and head off into the retirement sunset. The choice is a highly personal one; but settling the question as soon as possible can have a big impact on how you plan the rest of your retirement.
Or there’s the RV lifestyle—“recreational vehicle,” that is. Many retirees prefer a nomadic life which allows them to see new places, enjoy new experiences, take advantage of the best seasonal weather, and still keep in close contact with family and friends. In some ways, RV living can be less expensive; in other ways, it can be (for some) prohibitively expensive. Can you afford it? Are you ready to adapt your plans in order to afford it?
There are too many possibilities to list them all. What’s important is simply to decide early how you’d like to live, and realize all the factors that will go toward deciding whether or not you’re able to make that dream a reality.
2. Set a retirement date
This is as much a matter of deciding how long you’d like to be retired, as it is how long it may take to prepare the way. If you’re going to live entirely off savings and investments, you’ll likely need to save for a longer period before retirement.
Your estimate of longevity will have something to do with your retirement date, as well. No one can know with any certainty how long he will live; but family history and lifestyle are good indicators. If you come from a long-lived family and live a healthy lifestyle, you can count on needing more savings to live off of—nobody wants to find himself impoverished in old age. And that can mean putting off retirement for a few more years while you build your nest egg.
3. Take a retirement inventory
As soon as you know (more or less) when you will retire, and what kind of lifestyle you’ll have to support, it’s time to calculate what you’ll need in order to make your plans a reality. Again, it’s not possible to know exactly—but it is possible to make sound estimates.
Many expenses go down for retirees; they may drop dramatically. For instance, without children to raise and educate, those expenses disappear entirely. The cost of food also goes down, with only two mouths to feed, or possibly even one. On the other hand, medical expenses usually go up, and often go up drastically. In all, living expenses for retirees are usually about 75% of what they would be for younger people.
The big change is where the money is coming from. You should calculate all sources of retirement income—which may include social security, employer pensions, retirement plans such as 401k’s and IRAs, savings accounts, dividends from stocks and bonds, even the probability of inheritance—and come up with a realistic assessment of how much money you should be able to depend upon for your retirement. Will your chosen lifestyle require more? That difference to make up is what helps you decide whether or not to continue working after official retirement.
4. Talk to a professional
You can perhaps make good, even very good, guesses, but to make sure you’ve covered every base that needs to be covered, see a professional retirement planner. In truth, every case is unique—but not as unique as you may think. A good retirement planning consultant will have seen far more cases than you could have experience with, and will be able to spot the deficiencies in your plan and suggest the proper measures.