Getting by is good enough for many people when they retire. Since many people retain good health into their seventies, the thought of continuing to work beyond the traditional retirement age is not a problem. Working beyond the age of retirement can also help people while they try to cut down expenses and lead a comfortable life.This one change can subtract a decade or more from the amount of time that must be provided for in retirement nest eggs. Variances in the duration and lifestyle of your retirement can make swings reaching tens of thousands of dollars in the amounts needed to retire.
Understand the difference between savings, investments, and income.
In retirement, three key components rule the roost. All three share equally in providing for your retirement financial needs. Investments are that portion of your retirement plan that should not be depleted unless you have no choice. Investments produce income and serve as a foundation to the other pieces of your financial picture.
A savings account provides you a buffer against emergency needs.
Unlike your investments, it will generally fluctuate up and down a bit. Income represents payments you receive regularly from sources like Social Security, company or government retirement plans, and investment interest and dividends. For the best results in retirement, you want your income to be extremely stable with the potential to increase enough to offset the effects of inflation.
You need to plan for the unexpected.
Establish a savings buffer large enough to absorb the shock of all but the most extreme emergencies. You need enough income to be able to rebuild this account when it is tapped for unexpected needs. This fund will prevent you from wiping out your investments and the income they produce when an emergency strikes. For most people, this account needs to be supplied with somewhere between $20,000 and $50,000 depending on your lifestyle and where you live.
Consider your health.
Unfortunately for some people, when they retire is dictated more by health than by age. You need to assess your health situation carefully as you approach your projected retirement age. If you have health issues that could quickly erode your assets, you consult a financial planner who can help you map a route to conserve assets while providing for your physical needs. With excellent health, you may be able to wait until after retirement to approach this issue. Either way, your good health or lack of it will influence how much money you need in retirement.
Will working beyond traditional retirement age lead to more ability to save?
Many people reach their peak earnings after age 50. If you are able to continue at a high earnings potential into your late sixties and early seventies, you may want to reduce the total assets available after you retire. These extra earnings give you the flexibility to allow your retirement investments to grow without adding to them. During this time, you can set up trusts and other accounts that can survive as an inheritance to your heirs. If your own retirement planning was started late and is under funded, you should be able to use this bonus money and time to catch up.
Where will you live?
Location is a critical consideration in retirement. Some parts of the country and world have relatively inexpensive costs of living. Others do not. You do not want to attempt to retire in southern California with the same money that you set aside for retiring in the rural Midwest. It will lead to quick destitution. You may need to double or triple retirement costs to compensate for such a move.
How well do you want to live?
Will you be the prince or the pauper when you retire? An income between $1,500 and $2,500 per month if your housing is paid for will give you a livable sum in lesser cost locales. You will need to add another thousand dollars or so if you want comfort and frequent travel in your old age.
Seek help for future cost-of-living estimates.
Your local banker or investment broker should have access to cost-of-living projections for the areas where you might want to live. They should also be able to provide a good estimate of the expected cost-of-living at the time of your retirement compared with today.
You can reduce excess funds by setting up trusts to transfer them to your heirs.
If you have significant excess funds in your retirement portfolio, consider doing some form of early gifting to your heirs. Pay attention to gift limits and time frames that apply to your area. If you do not have a broker easily available, feel free to ask your bank’s investment team to assist you in setting up tax friendly ways to pass your money along early. You have a great number of potential options to choose from. Experts in your state’s laws will give you the best advice on how to proceed.
Make sure the surviving spouse is able to survive financially.
Occasionally, people become so focused on taking care of their heirs that the people themselves are overlooked. Whether you or your spouse become the surviving spouse, you need to consider how this will change the financial picture for the survivor. Income may decrease if pensions go away. Inheritance laws and taxes may come knocking at the door. Appropriate paperwork and asset division can help avoid a wealth of problems. It also will guide how you set up certain portions of your assets for best results.
Total up your assets, income, and expenses every year.
Regular accounting of your financial progress is necessary. The amount needed for retirement can change from year to year as you approach that time. A financial review at least annually will give you the peace of mind that you need heading toward your senior years. It also allows you to make needed adjustments when they become apparent.
Establish a retirement budget to guide your financial preparation.
A retirement budget is the backbone of a good retirement plan. You need to know what you can spend on housing, utilities, healthcare, food, clothing, recreation, and other requirements. Any or all of these numbers can change every year. Adjust your retirement plan to compensate for projected changes to your budget.
