Friday, July 22, 2016

Five steps to retirement before you stop working

"Planning is bringing the future into the present so that you can do something about it now." --- Alan Lakein, author of "How to Get Control of Your Time and Your Life." In his 70s, he lives in Santa Cruz, Ca.

Editor's note: This five-step retirement planning post has made earlier appearances at But its value is so compelling, I am providing this updated version. For both singles and marrieds, we provide a road map for retirement planning. If married, do a separate version as if one of you has died. Remember that half  of American women over age 65 are single and financially on their own. Share these steps with your children, especially your daughters.

People tend to put off retirement planning until their 50s. Most of us are too busy with family and work until then to think about seems like far away retirement in our 60s. Even then, some may ignore the whole issue until it is too late. Others may experience a growing sense of panic about the future with more questions than answers.

How much income will I have once I stop working?
Where will that money come from?
How long can I expect to work after age 60?
When and how should I begin taking Social Security benefits?

All this may seem like a black hole.

Here are five steps that will tell you where you stand and what you need to do between now and that day when you walk away from that full-time job.

STEP 1: Determine your net worth. This is rather straightforward. Add up all your assets -- value of your house, your car, savings accounts, 401(k)...everything you own. Then subtract your debt --- what you own on your mortgage, credit cards, car payment -- from your total assets. That gives you your net worth.
The idea is to grow your net worth as you move toward retirement by paying down debt and saving more. To know where you want to go, you need to know where your are.

STEP 2: Come up with a (current) monthly household budget. Figure out how much it is costing you and your family to live month-to-month. List your monthly rent or mortgage payment, your estimated monthly food costs. Add in monthly insurance fees and utilities costs.  Include what you are spending on transportation, clothing, medical services, entertainment and travel and credit card payments averaged by month.  Don’t forget taxes. This current baseline cost-of-living budget will determine where you want to be down the road in retirement and what you might change (save or cut back) going forward.

STEP 3:  Visit the Social Security Administration web site at and set up an account using your Social Security number. Calculate -- based on your own work history -- what estimated benefits you will receive at age 62, at 66 and 70. You will learn that benefits increase by 8 percent for every year that you delay taking them up to age 70.
But don’t stop there because there are other ways to claim benefits based on your marital history, your age and whether you are widowed or divorced. For instance, you may be able to receive benefits on a spouse’s Social Security account while letting your own account remain untouched. All this can quickly get complicated but definitely worth figuring out.
Keep in mind that if you start benefits at 62 rather than at full retirement age of 66 or 67, your benefit amount will be permanently reduced up to 30 percent from what it would be later.
For personal assistance, schedule a face-to-face meeting with Social Security rep at a local office to better understand your options for how and when to claim.  Social Security is an important revenue stream for retirees and should carefully be planned out.

STEP 4: Consider what other sources of income you likely will have in retirement. Will you be tapping into a retirement savings account such as tax-deferred work-related 401(k) plan or a self-directed Individual Retirement Account? How much do you plan to withdraw?
Will you receive revenue from a rental property? Do you expect to inherit money or property? Do you hope to ease into retirement by working part-time after you step away from the full-time job? Be sure to factor in Social Security benefits to see what your total income in retirement might be. Don't forget to factor in that at age 65 Medicare kicks in and your health insurance costs may change or decrease.

STEP 5: Put together an estimated retirement household expense budget similar to the current budget you have already formulated. Will your cost of living decrease in retirement from what it is now? Or will it be pretty much the same as your current budget? Some expenses for such things as clothes and transportation likely will drop while others related to travel and medical expenses may increase.

By now, you should be feeling better about where that retirement money will come from and what it will cost you to live in retirement.  Using this information, you should be able to better decide when you might want to retire from full-time work or whether you might be able to shift to part-time employment.

Now for the BIG QUESTION: How does your estimated retirement cost-of-living budget match up with your estimated retirement income? If retirement expenses outstrip retirement income there is a lot you can do in your 50s (or earlier) to make sure things match up in your 60s.
For instance:

Realistically, could you keep working into your late 60s?
Can you delay claiming Social Security benefits?
Could you claim benefits on an ex-spouse before claiming them on your own Social Security account?
Could you pay off your mortgage before you retire?
Could you downsize to a smaller, less expensive place, a different town?

These strategies can help stretch your retirement savings.

You now have a good picture of where you stand and what your income will be in retirement, depending on the age that you retire. You now have the basic information to form a plan and make changes, if needed.

If estimated retirement income does NOT cover your estimated retirement expenses, you have two choices: Either aggressively save more money for retirement or reduce your living expenses before you retire to match your expected income.

You may be surprised that retirement looks better than you thought. Either way, you have eliminated the black hole.

For MORE:  Social Security tips for singles, click here.

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