Retirement can be an exciting chapter in your life. But perhaps you are wondering whether you have enough money to retire and to stay retired? Here are four steps you can take to help you to figure out your retirement situation.
Step1: Estimate Your Retirement Income
This means calculating your retirement income from all sources. Include your pension if you have one, Social Security benefits, real estate, personal investments, your 401(k), any inheritance(s), annuities and life insurance cash value.
Step 2: Estimate Your Retirement Expenses.
Most people focus on just one side of the retirement equation: income. But to effectively plan for retirement, ask yourself how much money you will need to pay for your lifestyle in retirement. This means figuring out your expenses. Include the basics—such as housing, taxes, and food—but make sure to take extras into account, like travel, hobbies, and leisure activities. And don’t forget about medical expenses. This becomes especially important if your company doesn’t provide coverage for retirees and you’re too young to be eligible for Medicare. But Medicare supplements aren’t exactly cheap either, so plan for this too.
Also – consider that you need to look at both your income and expenses over your entire retirement – which can be 30 years or more. I often see people spend liberally for the first five to eight years of their retirement. This early spending can significantly reduce their financial resources over the longer haul. By spending too much too early, they end up financially constrained for the rest of their retirement.
Step 3: Be Flexible and Open. Be Prepared to Shift Strategies.
If your retirement calculations come up short, now is the time to adjust your financial plan. This could mean cutting your current expenses by downsizing your home, reducing travel or eliminating club memberships. It could mean focusing on getting rid of high interest credit card debt. Prioritize what is truly important to you and let things go so you can save more. Sometimes we need to make hard choices.
Being open to new strategies might mean delaying your Social Security benefits so you can draw a higher benefit later. You could also consider financial products that can guarantee a steady stream of income in retirement, such as life insurance and annuities.
Step 4: Remember – Retirement Will Hopefully Last a Long Time
Try a trial run of your retirement lifestyle. Living on your retirement budget for 6 months or so can also help you figure out if this budget is realistic. See how this budget works for you. If you feel comfortable, great. And if not, then there’s time to course correct before you get to retirement. It’s all about the planning. Remember the old adage: “People don’t plan to fail, they fail to plan.”