What is retirement planning?
Improved medical science and health care means that people are living longer. And longevity of life means that you will spend many more years in retirement than your parents and grandparents did. You need your retirement income to have solid “staying power” during your retirement years. So … whether you are 25 or 65 years old, retirement planning is the process of preparing for financial stability through your retirement years.
How much income will you need during your retirement years?
This is a great question, but it comes with a complex answer. Most financial experts advise their clients to plan on needing at least 70% of their pre-retirement income. The actual amount that you will need will depend on several factors, some of which can be planned (such as how long you plan to work, and whether you plan on paying off your debts before retirement) and some unknowns (such as unexpected health issues). In addition, your preferred lifestyle will affect the amount of income you’ll need and whether it will outlast your savings.
Before you retire, it is wise to consider the following questions and discuss them with your spouse or significant other:
Maybe you want to do some consulting on the side. Perhaps you want to travel or spend more time with friends. Is there a new hobby or activity you’ve been wanting to explore? Having a clear vision for your retirement will be essential in estimating a monthly retirement budget.
Paying off credit card balances, student loans and home mortgages are essential in reducing your monthly retirement expenses.
If so, you may not need to draw upon your retirement savings as much as you thought. Working as a consultant, writer or part-time employee can provide a source of income that can help delay the need to draw upon your savings, pension, 401k or IRA.
The lifestyle you choose in retirement will be a major factor in the amount of income you’ll need. Staying at home and enjoying time with friends and family may require less income than the costs of traveling around the globe.
While it is impossible to look into a crystal ball and see what the future holds, the fact of the matter is that your family’s medical history, combined with your past and present health, can help you think about the medical care you may need in the future.
For example, are you listed as a beneficiary in anyone’s estate plan or investments? Do you anticipate receiving additional income through the sale of a business or property? If so, it may be possible to convert this one-time source of funds into an income stream.
Based on your birth year, the Social Security Administration now determines the specific age that you are eligible for full Social Security benefits. You’ll pay a permanent penalty by taking your benefits early, and on the other end of the spectrum, you’ll receive a larger Social Security check every month by waiting longer to take your benefits.
Various investment vehicles provide various types of money. Annuities can provide income streams, while stocks and bonds pay dividends while allowing for liquidity for unforeseen emergencies and expenses. And of course, retirement entitlements such as pensions and Social Security benefits are all part of the picture.