The Golden Question of Retirement Planning
You’re working hard, playing hard, and taking things on as they come.
Retirement planning may be the furthest thing from your mind. But if retirement is decades away, you’re in the best possible position to start planning now! With time on your side, your investments will have years to enjoy the power of compound interest.
But even if you’re approaching retirement and need to catch up, it’s not too late to start.
Before you sit down to plan, there’s one golden question you should ask yourself to identify the right plan for your retirement: How much income do you need to retire comfortably?
Most financial experts say your retirement income should be 70–80 percent of your final pre-retirement annual income. That means if you make $150k annually at retirement, you need at least $100k per year to have a comfortable lifestyle after leaving the workforce.
Sometimes we’re so hyper-focused on ensuring we have enough saved up—which is essential to a relaxing and secure future—that we overlook the bigger picture.
If you’re serious about planning for your retirement, then you’ll need to go deeper than that one question, as it’s only the first step. Disposable income isn’t the only factor to look at when determining potential retirement plan strategies.
Here’s a quick checklist of what a good retirement plan should consider:
- What’s My Preferred Retirement Age?
It’s impossible to calculate how much money you’ll need in retirement without a firm idea about when you want to retire.
Fortunately, there’s no mandatory retirement age in the United States; people work as long as they like.
Retirement is a personal decision that involves many factors:
- Financial readiness
- Career aspirations
- Spouse’s plans
- Lifestyle
- Health
- Business goals
- Financial responsibilities
There’s, however, a vital milestone that will probably affect when you decide to take the leap. When you reach 62, you can start collecting Social Security retirement benefits.
- What Kind of Retirement Lifestyle Do I Desire?
Philip and Russ live next door to each other in similar homes. Even if these neighbors appear to lead parallel lives, they have dissimilar hopes for their retirement years.
Philip wants nothing more than to stay in his present home, spend quality time with his grandkids, and tend to his orchid. He has spent his career traveling to different cities around the world. He just wants to rest.
Russ wants to spend his retirement living overseas and exploring the world. He views retirement as a time to spread his wings, meets new people, and experience new cultures.
Russ’s hoped-for lifestyle will need significantly more funding than Philip’s, and that’s okay, provided he plans for it and protects his growing wealth.
How about you? What kind of lifestyle do you want to lead when you down your tools?
- Where Will I Live When I No Longer Have to Work for A Living?
The freedom to live wherever you want is one of the greatest perks of retirement for many Americans.
You can move closer to your loved ones, move to someplace new you’ve always dreamed of, or stay right where you are.
If you plan on living in your present home, then you already know what to expect in terms of expenses.
If you pay off your existing mortgage and stay in your home, like Philip from the above example, your housing costs will be negligible.
If like Russ, you move to a more expensive area, you will need to factor these costs into your overall retirement plan.
- How Will I Pay for Medical Expenses in Retirement?
While not running out of funds is a key concern for most future retirees, covering medical expenses is a close second. Healthcare will probably be one of your biggest required expenses as you age.
Anyone 65 years or older qualifies for the Medicare health insurance program.
However, Medicare doesn’t cover 100 percent of your healthcare costs in retirement. Even with this cover, a 65-year-old couple retiring in 2022 can expect to spend an average of $315k in health care and medical costs.
One way to plan for these expenses is with a health savings account (HSA).
- Will I Need Aged Care?
Retirement has various seasons, from taking up new hobbies and traveling to winding down and dealing with health issues.
What are your plans when you get frail? Do you plan to live in aged care homes in your life? If this is the case, budget for the associated costs.
By planning for such contingencies while you’re young and healthy, you can minimize future anxiety and stress, both for yourself and your family.
Conclusion
When you have answers to the above questions, you will be ready to meet with your financial advisor and mold your hopes into realistic tasks and goals.
IMPORTANT DISCLOSURES
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.