Planning for Retirement
We’re busy, busy, busy with places to go and things to do. Throw our kids and our spouses into the mix and American families have never been more scheduled nor had more demands for our time and attention. All the planning and time saving technology has just cleared the way for more demands to move in. Nature abhors a vacuum!
One part of the demands that clamor for our extra time is the need to be knowledgeable about finances, credit, debt, and credit reports and scores, while at the same time safekeeping all our personal information from identity thieves and scammers. While we are trying to figure out how to get through the week-end, the pay period, the month, the summer, or college funding we will be reminded of our ongoing need for planning and foresight into our future retirement needs. It can certainly be tempting to “Tara” retirement planning (I’ll think about that tomorrow!), eventually there are not enough tomorrows left.
Take five minutes today and review some of the numbers. (Consider this your ‘scared straight retirement program’).
First of all, how much money do you really need when you retire?
It is generally believed that you would need between 65 to 85 percent of your pre-retirement income to live comfortably once you retire. While it may be true that some expenses may drop during retirement, others such as medical and insurance expenses may actually rise. Unfortunately, because we really can’t predict the future (much as we’d like to believe we can) and each of us has a different way of spending money, only you can truly estimate what you’ll need. For example, while most of us picture retirement without a mortgage or rent, a recent study from Boston College Center for Retirement Research says that the ‘typical retired couple’ actually expends 29 percent of their funds on housing. Oops!
Other expenses the report mentions include:
- Health care 20 percent
- Food 13 percent
- Clothing 2 percent
- Transportation 12 percent
- Entertainment 10 percent
- Gifts 10 percent
- Other 4 percent
So, how prepared are we for retirement?
At current savings levels (including Social Security and pension benefits) the average American would be able to replace just under 60 percent of their pre-retirement income. Hmmm. How would you do with a 40 percent pay cut while still paying out 29 percent of your available income to housing? Don’t even think about living longer and rising health costs.
So going to our elders (those recent retirees) for wisdom – what do they say they wished they could do over? Number one – create a budget (yeah, the ‘B’ word again) of the income and expenses you anticipate handling during retirement including activities and lifestyle changes. Many folks who have lived with budgets their entire lives miss this basic concept when planning for retirement.
Next, seek out more complete knowledge of how your retirement accounts will work once you retire – 401 (k), IRAs, and so on. How are the payouts determined and at what intervals do they occur? When can I start to draw from the funds and how much? When will I be vested in this retirement plan? Do I have to take the funds in a lump sum (requiring me to create a management plan) or will monthly allotments be made? If your employer offers matching deposits for retirement accounts – sign up now, even if you are 21! If you get nothing else out of this article remember this – you are throwing away free money by not participating in employer sponsored retirement plans that offer matching funds.
Finally, make a plan or an asset allocation strategy that shows what you expect your budget to be and how your retirement accounts will meet that budget. An asset allocation strategy is how you will manage your retirement income while continuing to make your money grow through saving for those years even further down the road.
While having this information may not make retirement planning easy, it will certainly give you a better idea of where you’re headed, gaps in your planning, and the needs you must consider to be able to look forward to your golden years untarnished by anxiety.
OK, five minutes is up. Go on with your lives.