Have you thought about exactly how much money you will need in order to retire comfortably and remain comfortably retired? Have you considered how long the money you’ve saved will last given your on-going earned income, taxes, inflation and the anticipated growth of your investment assets. Is your retirement income plan sustainable, even if you live 30 years or more in retirement?
The answers to these and other questions are critical in helping you formulate a plan for a comfortable retirement. And the sooner you ask these questions and take the appropriate actions, the more likely you can reach your goals.
Unfortunately, many Americans are not prepared for retirement, especially considering that they can no longer count on programs like Social Security, Medicare or pensions to fully cover retirement expenses. According to the Employee Benefit Research Institute, 46% of all American workers have less than $10,000 saved for retirement and 29% of all American workers have less than $1,000 saved for retirement. This lack of preparation is reflected in the survey by Americans for a Secure Retirement, which found that 88% of all Americans are worried about “maintaining a comfortable standard of living in retirement” – up from 73% in 2010. That is almost 9 of every 10 people.
Most Americans are living longer. It’s not unusual for a person to spend 30 or more years in retirement. That makes it all the more critical to spend the time and effort today to develop a retirement action plan that can help you meet your goals.
The first step in the planning process is to think about how you want to spend your retirement years. Do you plan to work part time? Travel? Go back to school? Leave an inheritance? The point is that in order to know how much money you’ll need for a comfortable retirement, you’ll need to visualize your retirement goals.
Next, take a personal financial snapshot to understand your current situation. Make a list of all of your assets, savings and debts. Include real estate, retirement plans, business interests, investment accounts, insurance and other assets. Look at how much you owe on credit cards, mortgages, etc. This snapshot will give you the starting point for building your plan.
Now that you have the “where you are” take a look at where you are going. You’ve visualized your ideal retirement – now think about how much it will cost. Consider your expenses in retirement such as food, clothing, housing, and healthcare. Think about when and where you plan to retire and how you plan to spend your time? These will all impact how much you need to save for the comfortable retirement you want. Be sure to account for inflation before and after retirement.
Once you have a good idea of what your retirement expenses will be, think about various retirement income sources such as annuities, retirement plans, Social Security, and pensions. Perhaps you plan on working part-time or are expecting an inheritance. Maybe you plan to sell a business. These income sources will help offset your expenses in retirement.
After considering all of the above, you can then begin to project your cash flow in retirement. And again, don’t forget taxes and inflation. These have a bigger impact on your ability to achieve your goals than most people realize.
If you find a projected shortfall, you may have to make some adjustment; planning to save more now or spend less later. Look at all the variables that affect your retirement savings and income and make adjustments to find the right mix that works for you. Remember, things change so reviewing the plan periodically and making necessary course corrections is important.
Making a retirement income action plan may seem like a daunting task. But considering you may be retired 30 years or more, it makes sense to start planning today! If you have questions on getting started, give us a call.