If retirement is approaching, time is of the essence. Having a written retirement plan will help you not only mentally prepare but will hold you accountable to save a comfortable nest egg.
Here are some important retirement questions to address.
Whether you’ve been actively contributing to your 401k since your 20s or have been too busy covering expenses from life’s obligations; if you are 50, it’s time to get serious about your retirement planning.
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It’s important to remember that even though you may feel healthy and fit as a 50-year-old, there is a distinct difference between the decades in terms of financial planning — and by the time you reach 50 you have little time to take advantage of compound interest and dedicated retirement savings.
Many people have to retire in their 60s, or younger, because of caregiving duties, employment complications or health issues. Taking the time to actively prepare for your future is important; especially since many people are living longer today.
Here are the most important questions to address by yourself or with the help of a financial advisor or fiduciary:
Many people are living into their 80s and even 90s today. Factors such as current health and heredity can cause individual life expectancies to vary widely. The bottom line is that you should prepare to live a long time and save enough money to maintain your lifestyle.
Most people underestimate their life expectancy, which can cause financial distress in the later years of retirement. If you are married, be sure to address this question with your spouse to combine your retirement fund projections for more diligent retirement planning. Expenses and income will change after one spouse passes away and that contingency should be included in the plan.
An investment strategy is one thing; proactively managing that strategy to last through your retirement is entirely another. Your investment strategy will need to change as your circumstances change.
There is an art to spending money in retirement that most people haven’t learned. In fact, a startling percentage of Americans are uncertain of how to draw down assets and spend money in retirement. According to Ameriprise Financial, 71% of retirees surveyed said they think their money will last their lifetime, but only 21% feel “confident” in how to spend that money. It’s important to establish a spending policy. Most people don’t and often later regret it. Overspending in the early years of retirement leads to financial distress or major adjustments later in retirement. Develop a spending strategy and revisit it each year as the markets and your spending change.
Forecasting your spending in retirement is crucial to accurately plan your retirement nest egg. It’s important to develop a personalized spending estimate based on your envisioned activities and interests. Planning the retirement lifestyle you desire, including the geographical location where you plan to live, can help you accurately predict costs.
Keep in mind that spending will fluctuate for where you are in life, so make sure to adjust for inflation. Most people spend less as they age because they’re less active and have done those once-in-a-lifetime activities. For most people, spending steadily declines after age 75 or so, though it might increase later in life because of medical and long-term care expenses. It’s important to address the potential healthcare costs of retirement.
You may have visions of retiring young, but the reality is that you’ll be able to retire when your assets and income are sufficient for you to maintain your desired standard of living. Compare your spending estimate to your sources of retirement cash. If needed, modify the expected activities to make spending match assets and income.
Diligently assess your discretionary and non-discretionary spending, calculate your assets and determine where you’ll need to adjust your retirement portfolio. This is when an expert financial advisor can help you accurately forecast your retirement and help you invest based on your unique situations.
Social Security is the only inflation-indexed guaranteed lifetime income for most people. Don’t make a fast decision on when to receive Social Security benefits. You have choices, and it’s important to optimize the Social Security decision, especially for married couples. The right choice can add tens of thousands of dollars of lifetime income. Also, healthcare can be one of the most difficult costs to assess, so consider maximizing insurance coverage and options.
This question is based more on your personal preferences and expectations for retirement, and when you would like to retire. Age shouldn’t determine your retirement date, but rather retirement readiness should.
Retirement readiness is a state of mind. It means you are content to leave behind your workplace, including the colleagues, structure, sense of purpose and activities. Forecasting your professional and retirement goals can help you answer this question.
Every person’s situation is unique, so it’s important to be strategic with your finances if you’re still trying to grow your wealth or maintain a legacy well into your retirement.
Get informed today so you can have peace of mind in retirement with the help of an expert financial advisor or fiduciary.
What other retirement questions do you have that were not covered above? We’d like to hear from you in the comments below.