Ready, get set, stop! That’s the problem if you do not plan your retirement!
Retirement as a goal is not as easy as it may seem. You are definitely not just retiring from work but you are retiring into something. That “something” is something you should define and plan for long, long before and not after your last day at work. After all, the old saying “if you fail to plan you have planned to fail” has a lot of truth to it.
So, what do you need to plan for and how can you do it? Here is a checklist of areas and a few ideas you need to consider long before you retire.
Create a Budget for Your Retirement Life
Budgeting is an approach to your finances that should start long before the word “retirement” enters your daily vocabulary. A good starting point is Dave Ramsey’s Financial Peace University. Dave is rightfully passionate about your need to budget at any age. Whether you start at FPU or start with free services available online, your budget at a minimum must include the following:
o All income broken down by the month,
o All expenses broken down by the month as well, and
o Projections into the reasonable future.
Not all expenses are weekly, bi-monthly, or quarterly. Some are annual. Others just happen when something breaks. Some increases in your expenses are not just possible, they are virtually certain, so you have to cover not only the full year with your budget, but gaze into the future. This isn’t easy but it also isn’t terribly hard.
Start by looking back for at least 3 months, preferably for a full year, and track all of your expenses. A budget is only as useful as it is both inaccurate and complete.
Once your budget is done, schedule time each month to see how well it really tracks your expenses and how realistically it reflects your real life.
If you start budgeting long before you retire, one exercise you should do to prepare for retirement is create a new budget, one looking at your projected income and expenses starting on day one of your retirement. Take out your current income, add your projected Social Security and income from your investments assuming a reasonable rate or return up to the projected retirement date. Now, look forward and adjust your expenses to reflect retirement. You may find that your expenses do not drop that much. See Budgeting and Personal Finance for good discussion on budgeting.
Is the life you can afford the life you want for your so-called golden years?
If not, you have two areas for intensive work before you can fully retire, your income and your expenses. Even if you are on track, these same two areas are still worth a frequent review because something that is on track today can be derailed in a heartbeat.
Income
You may have discovered that Social Security and your investments are not at all likely to produce the income you would like. Now you have several options. The first option is that you can accept poverty in your retirement. This is not the recommended choice. Second, you can plan on making and investing a lot more money in the future, starting now. If you chose this option, keep it realistic. Third, you can spend less now and save more. This third option is likely the most realistic but at the same time, pretty difficult.
See 8 Financial Moves to Make in Your 20’s and Roadblocks to Retirement for the idea of saving now, early, and the benefits of not delaying your planning for the future as well as It’s Time to Start Saving and 7 Steps for Financial Progress for hints on how to get started.
If you are unsure about your potential Social Security income, you can open a MySocialSecurity account easily. Click here for a guide on creating a MySocialSecurity account.
You may not know if you will have enough. Don’t guess and just hope. They are no mulligans or do-overs in the area of your personal financial life. This site has a reasonably good retirement calculator that is somewhat of a budgeting tool as recommended above. Try it out.
Hiring a financial adviser may be a wise path for you to take. It is difficult at best to plan your future without expert help. More often than not, good advice puts you far ahead of where you would have gotten and is well worth the cost. If you don’t know where to start, see Planning Your Financial Future and More for more discussion on this issue including questions to ask an adviser you may be considering, or call The Idlewild Foundation at (813) 264-8783, we can help you find a qualified adviser with experience in retirement planning and a Kingdom view.
One point should be obvious but is not always noticed. If you enjoy your work and don’t have to retire, you may not want to. It is only in relatively modern times that retirement became an expected result of a work life. See When Should I Retire? for more discussion on retirement.
Rebalance your Investments
Once you are close to or in retirement, your risk tolerance takes a dramatic decrease. You no longer have any time at all to make up for dips in the market. Get more conservative and make sure your investments are as reasonably “safe” as the market allows. No, everything should not be T-bills and CDs, but similarly, small-cap stocks look a lot less like wise investments in the portfolio of a retiree.
See Your Financial Future By The Decade for more discussion on this issue.
One thing is certain – diversify. Never put all of your eggs in one basket, no matter how certain and safe that basket may appear. A good mix of U.S. and International securities, bonds and investments is simply wise. It will reduce your gains when the market is hot in one sector, but the savings in the bad periods will far exceed the potential gains almost every time. Again, seek the help of a qualified financial adviser for this.
One investment to consider is rental property. Before you do this, be cautious because being a landlord has huge responsibilities and can land you in court with significant legal fees quickly. Residential rental rates are increasing rapidly, but then so are the costs to maintain rental properties. Long before you sign a contract to buy a piece of rental property, do an investment analysis. At a minimum, use the calculator AARP provides online.
Expenses
When you looked at your expenses in your projected retirement budget, you may have discovered you need to cut expenses. Most people spend money almost reflexively and don’t even think about it. Most credit card companies would admit that having and using a credit card (or two or three) makes people far more likely to spend than if they have to pay cash, about 25% more.
You may find you need to cut down spending. See 7 Steps for Financial Progress for more on this topic. While it is an article on saving, it is inherently an article on spending less. One way to spend less is to downsize your home. See next month, Part 2 of this article, for more details on downsizing.
One goal in retirement should be for you to simplify. One way to do that is to automate your bill-paying, at least as much as possible.
You may need to consolidate your debts, see Debt Consolidation? Maybe or Maybe Not, or re-finance your mortgage. However, in all honesty, it is wisest and best to be debt-free going into retirement if that is at all possible.
If you cannot pay off the mortgage before retirement and you do decide to refinance, shop around. Compare rates, closing costs and terms to gain a full understanding of what a re-financed mortgage will cost you and your heirs.
You will likely receive ads and promotional materials on reverse mortgages. Don’t automatically reject the idea, but be cautious. See The Truth About Reverse Mortgages for more discussion on reverse mortgages.
Expect the Unexpected
Prepare for the worst but pray for the best. Then, even if you fall short of the best, you are still not crushed.
Step one is an emergency fund to cover the inevitable surprises, from failed appliances, car accidents, roof leaks to medical emergencies. Have enough set aside in terms of liquid funds to cover six months of living expenses. See It’s Time to Start Saving for more discussion on this issue.
If you are prepared, the sudden expenses that devastate many retiree’s budgets will be painful but bearable problems for you. For help in considering this, just look back ten years in the lives of yourself and perhaps nine friends. What surprises happened in those ten lives? Know that while the chances one or two of those will happen to you may be small, statistically, they will happen to someone.
That’s a lot! But what you need to do does not stop there. See Part 2 which has a list of additional things to add to your “to-do” or at least to your “to-consider” list.
About the Author
John Campbell has retired from a 40-year legal practice as a trial attorney in Tampa. He has served in multiple volunteer roles at Idlewild Baptist Church in Lutz, Florida, where he met Jesus. He began serving as the Executive Director of the Idlewild Foundation in 2016. He has been married to the love of his life, Mona Puckett Campbell, since 1972.