What will my retirement look like? As we enter our 60s that question certainly comes to the fore with lots of auxiliary concerns to go along with it. Here's a clue: The earlier you get a handle on your income in retirement and where it will come from, the better.
You will sleep better at night, even if the news isn't so good. Instead of a hazy unformed worry, retirement can become something you can deal with. Once you know your retirement income scenarios, you can decide if semi-retirement may be a good idea that would combine part-time work with retirement savings. You will know if working to your full retirement age as determined by Social Security while packing as much money as possible into your 401(k) is the best strategy. You may decide that quitting the full-time job at 64 is better than at 62 or that clearing out all your debt before retiring is the best strategy. The U.S. Department of Labor offers a helpful Web site to get started. Click here.
Whether single or married, women need to pay particular attention to retirement planning because they likely will out-live their husbands and find themselves on their own at a time when work is no longer part of the picture. What will your retirement look like? There are plenty of investment industry professionals who want to convince you that you need help with this...but honestly, it is best to start by digging into the basics on your own before someone wants to sell you an annuity or take charge of your 401(k) on commission.
Here are my FIVE STEPS to RETIREMENT PLANNING:
Step No. 1: Check in with the Social Security Administration. Make sure your account is accurate and you're being credited with all contributions made from your employment. Then look at scenarios for what monthly benefit you will receive from Security if you retire at age 62, age 64, 66 or later. Make a face-to-face appointment at your local Social Security office to learn about other options related to your marital status, an ex-spouse or death of a spouse. You can go online for much of this at http://www.socialsecurity.gov./ But a face-to-face is a good idea.
Step No. 2: Determine your net worth. What's that? Basically you add up the worth of all your assets including real estate holdings, your savings and investments, 401(k), cars and even jewelry. Then you subtract your liabilities owed against these assets. That's your net worth. Again, this gives you a good idea of where you stand financially. It tells you what debt you might want to pay off before you quit the big job and what your loan obligations might be in retirement. CNNMoney offers a calculator. Another at SmartMoney.com
Step No. 3: Figure out your household budget. What are your current monthly living expenses for housing, food, insurance, clothing, car maintenance, gasoline, entertainment/travel? What will they be in retirement?
Look at your checking account activity and credit card records to figure out your monthly budget. Dig down into the miscellaneous category for where you are spending money every month. Once you've got a current monthly household budget then ask yourself what will change (if anything) in retirement?
Your gas bill may go down but your health insurance costs may go up. Will you want to allocate more to travel?
Doing a household budget allows you to think about what needs to change before you retire. Obviously, cutting expenses is the easiest way to give yourself a raise in retirement. Try the calculator at bankrate.com, click here. Kiplinger's budget calculator, click here.
Step. No. 4: Determine where your retirement income will come from. Monthly Social Security benefits are a start. What will your retirement nest egg produce if you withdraw 4 percent a year over 30 years of retirement? There are many retirement income calculators available online to help with this project. Plug in the variables then play with the numbers: Variables include your withdrawal rate, your investment mix of stocks, bonds and mutual funds and the dividend rates of your holdings. Don't be too quick to move into "conservative" investments in retirement if you expect to keep up with inflation. You can still earn money even though you may not be working in the same way you were before retirement. Here are some helpful retirement income planner Web sites:
Monthly income after taxes and inflation over 30 years, click here.
http://www.fidelity.com/ offers a retirement income planner site, click here.
http://www.bloomberg.com/, click here.
http://www.money.cnn.com/, click here.
Step 5: Look at other considerations. Does your family health history indicate that you should invest in long-term health care insurance? Does a fixed annuity make sense for you? How about a charitable annuity? What will retirement look like if you're on your own? Have you talked with your children about your plans? Is your will up to date? If you've remarried and have step-children have you and your spouse talked about how your tangible assets (furniture, grandma's china, art work) will be dispersed when one of you dies? If you're thinking of remarrying have you and your partner discussed a pre-nuptial agreement to protect each other's assets if one of you dies or you divorce? Will you inherit from a parent? Should you count on an inheritance? How does that change your retirement plans?
Retirement planning can be exciting and rewarding. Knowing where you stand financially can make all the difference in terms of your confidence about the future. Basically you can enjoy the here and now if you have some assurance that you will be OK down the road. Don't put off retirement planning.