For many, retirement is a long way off on the horizon, and for others, it seems to be looming ever-closer. But retirement doesn’t need to be something to fear – with good financial planning, those post-retirement years could be better, and more fulfilling, than just “golden.”
How Much Will You Need?
Start by creating a budget. You can begin by looking at current expenses, then projecting how each might increase and decrease after your retirement.
While conventional wisdom often puts post-retirement spending at 70-80% of previous annual spending, this is not often realistic. While some expenses, like transportation, can go down, others, like health care, tend to increase, and their costs are rising every year. Retirees might also consider that as they will have 8 more hours a day to spend on leisure, that this could also cause them to go beyond their initial spending projections.
Many retirees choose to further decrease their expenses by relocating to areas where the cost of living might be lower. Consider, for instance, that the average cost of a semi-private nursing care facility in Connecticut in 2018, at close to $13,300 per month, is almost double the average price for a nursing home in South Ogden, Utah, at about $7,000 monthly.
Now that you have your expenses, it’s time to consider how you might be funding these into your retirement years.
While pensions and employer-sponsored retirement plans like the 401(k) might be the most obvious sources, they are becoming a smaller and smaller portion of post-retirement income, with personal savings and investments tending to take on a much larger role. Check in with Social Security (which can be done online) to determine how much money you are set to receive at retirement, and find out if you are eligible for other forms of medical and financial assistance. Other income sources might be passive – like rental properties, or gains, like property sales. Make sure you also consult on taxes – most of this income won’t be tax-free.
Set the Date
The time between your current age and your retirement is the first consideration when coming up with a retirement strategy. Higher-risk investments like stocks historically outperform safer ones, like bonds, but only over a longer term, over 10 years. Consider also that while inflation percentages can seem low, that 3% can eat into 50% of the value of your savings over 24 years.
If your income vs. expenses still don’t make you feel confident about your retirement, consider pushing that date forward a few years as you continue to build your nest egg. Even part-time work could help reduce debt or increase savings and waiting longer to dip into investment income and Social Security could turn the tide against inflation. A good financial advisor could also help to optimize social assistance income and to prioritize more profitable investments that will make your savings work for you.
Planning your Legacy
This is also the time to consider what you want to leave behind. A good estate plan includes not only a portfolio of investments, but also last will and testament, as well as trusts for any children or family members. You’ll want to periodically update and review these plans and documents to make sure they are in order and that they conform to the legal requirements of your state. Another legacy can be in the form of charitable donations. As part of your estate plan, you might choose to keep giving back even after you’re gone.
With the groundwork planned and the seeds sown in the prime of life, retirement could be a time not only for leisure, but to pursue dreams, to connect deeply with family and to enrich our lives and those in our communities.