Planning For Retirement
Some folks look forward to retirement as a time to relax, travel and enjoy life. For others, it just creates a sense of dread. Regardless of which side you fall on, time spent on planning for retirement can be a terrific investment. Keep in mind that while preparation is essential, remaining open-minded and flexible are equally important. Set realistic goals. Project your retirement expenses based on your needs, not rules of thumb. Be honest about how you want to live in retirement and how much it costs.
To get started, ask yourself these questions:
- What do you most want to accomplish in retirement?
- Are there lifelong goals you would like to achieve?
- What do you most look forward to in retirement?
- What do you least look forward to in retirement?
Where do you envision living in retirement? Most Americans will choose to retire near home, usually to be close to family or because of strong community ties there. But if you are thinking about moving, or perhaps buying a second home, you may want to consider how close you want to be to family and friends, access to good hospitals and healthcare, climate/weather, crime rates, cost of living, housing costs, taxes, amenities and political climate. If you are thinking of relocating, it is a great idea to spend time in that region first.
To get a good idea of where would be the best place for you to spend your retirement, ask yourself these questions:
- Do you want to stay in your current home for the rest of your life, if possible?
- If not, how long do you want to stay in your current home?
- Do you want to retire in another city/state? If so, what type of area is appealing to you?
- How important is it for you to live near family?
- Do you want to travel extensively in retirement?
It is not unusual for retirees to find themselves busier than when they were working full-time. From caring for grandchildren to volunteering and traveling, the possibilities are endless and somewhat overwhelming.
Consider how important the following activities are to you, and spend some time thinking about what you would like to do in retirement:
- Family and Friends. It is important to decide how much time you would like to spend with family and friends.
- Working. Many retirees do continue to work at least part-time. Some do so for the income, others for the benefits such as health insurance, and still others would be bored without a job to go to!
- Learning. Whether it is learning a new language, taking up art or gaining new computer skills, there are many learning opportunities.
- Hobbies. If your hobbies have been neglected because you have been too busy working, now is the time to dust them off. Or you can try something new!
- Fitness and Sports. Everyone knows that exercise is good for us, and research is demonstrating that not only can you stay healthier through regular exercise, but you are likely to be happier and have a better quality of life as well.
- Travel. You may dream of a trip to Hawaii or Europe, or perhaps you would just like to see more of the United States.
- Volunteering. You can be as busy as you want to be in retirement, and volunteer opportunities are one of the reasons why. Schools, government agencies, political, nonprofit and religious organizations are always looking for dedicated volunteers.
Save as much as you can as early as you can. Though it's never too late to start, the sooner you begin saving, the more time your money has to grow. Some experts will say you need 70% to 80% of your pre-retirement income because your expenses should be lower in retirement. Others say you will need more, because your expenses will be higher. Who's right? It depends.
Your individual needs will depend on some questions that can be challenging to answer:
- How long will I live? The life expectancy of Americans born in 2005 rose to 77.9 years from 77.5 years in 2003, making it the highest on record. Life expectancy for women is 80.4 years on average, and 75.2 for men. Although no one knows how long you will live, it is important to be aware of the fact that each year, medical advances make it even more feasible to survive to an even riper old age.
What will the cost of living be when I retire? As we get older, we start looking back fondly at how cheap things like movies, cars and homes were in our youth. That's due to inflation, which is a sustained increase in the cost of goods or services. Thanks to inflation, what might look like a comfortable income today may seem downright meager 20 years from now. Keep this in mind as you calculate your retirement income needs and benefits.
- What will my expenses be in retirement? It is true that some of your expenses might be lower in retirement. For example, your house may be paid off, and you may cut such work-related expenses as the cost of commuting from your budget. On the other hand, your expenses could be higher. You may want to travel more, or enjoy activities you didn't have time for when you were working full-time, such as traveling, shopping or eating out more. And as you age, you may pay more for medical care, prescription medications and perhaps even long-term care. Or you might encounter expenses you had not planned for, such as providing financial help to a child or grandchild.
- Will my investments grow, and by how much? It's easy to rely on past averages when calculating what you expect your investments to earn, but it can be risky to rely on the past to predict what will happen in the future. One of your "jobs" in retirement will be to become knowledgeable about investments so you can keep an eye on yours.
Will my benefits last as long as I do? The future of Social Security is being debated widely, and some employers are trying to cut back on retiree benefits. In addition, tax law changes may affect how much of your pension, Social Security or investment income will go to Uncle Sam.
Remember that while you can't answer these questions with certainty, there is one thing that is certain—a solid retirement savings, investment and income base is more important than ever. You won't complain about having too much money during retirement!
Here is a list of great ways to start saving money for your retirement:
- Money Market
- Certificate of Deposit
- Share Savings
- Stocks & Bonds
- Brokerage Account
- Variable Annuities
Wills, Trusts and Estate Plans
Wills and trusts are two of the most popular estate planning tools. Both allow you to spell out how you would like your property to be distributed, but they also go far beyond that. Besides enabling you to determine the distribution of your property, a will gives you the opportunity to nominate your executor and guardians for your minor children. Trusts differ from wills in that they are actual legal entities. Like a will, trusts spell out how you want your property distributed. Trusts let you customize the distribution of your estate with the added advantages of property management and probate avoidance.
Use this list to make sure the basics are covered:
- Sign a will. At a minimum, everyone should have a will. Without a properly executed will, your worldly possessions could be tied up for months or years in an arcane procedure known as "probate," with lawyers, courts and the taxman getting more of your money than the people you love.
- Appoint trustees and guardians for your children under the age of 21. Make sure the people you choose would be willing to take on these serious responsibilities. Then make it easy on the ones who will be left behind by explaining what you're doing and why.
Sign a durable power of attorney. Choose people you trust to make decisions when you can't and then sign a durable power of attorney to empower the person you select to handle your finances should you become incapacitated.
- Decide on your final wishes, and tell your loved ones so they know what they are. When the time comes, as it inevitably will, your family needs to know the funeral arrangements you prefer and your views on organ donation. They also need to know the whereabouts of your will, all insurance policies, any safe deposit boxes, lists of assets, names of brokers, account numbers and a veritable book full of other vital details. Keeping an up-to-date organizer may be a nuisance, but not having one may give loved ones a nearly impossible knot to untie.
- Take the time to list all your important papers and their locations. Keep an up-to-date copy in a safe place outside your home, such as at your office or with your attorney. Be sure to include: will/trust, power of attorney, funeral plans and burial instructions, bank and investment accounts, pension and retirement accounts, insurance policies, property deeds, vehicle registration/title, loan agreements and income tax records.
- Update your beneficiaries. If you get married or divorced, or if there are other important life changes, you must update the beneficiaries on your investment accounts, life insurance policies, etc.
The above information is educational and should not be interpreted as legal advice. For advice that is specific to your circumstances, you should consult a legal advisor.
Whether your retirement is decades away or right around the corner, the more time you spend thinking through the issues you will face, and preparing for them, the better you will be able to respond to life's curve balls. You'll also be better positioned to retire as you'd envisioned, on your own terms.
Ask a finacial advisor for more information.