In lives ruled by technology and urgent demands, it is easy to move retirement discussions a few places down the priority list. Yet, expecially in a challenging economy, it's better to light a fire under your retirement planning than to put it on the back burner. Most important is to understand how much it will cost to achieve your retirement vision.
Picture Your Retirement
Whether you have lofty aspirations or modest plans, your retirement will likely be one of your life's most significant investments. Planning for it is a lifetime process. It may seem daunting at first, but the best preparation is to set your goals early and focus consistently to accumulate what you will need for the future you dream about.
This lifetime process takes a holistic look at all aspects of retirement planning, including setting goals, accumulating resources, addressing risks, implementing income strategies, and tracking your plan regularly. Your financial representative is there to help you consider the possibilities, make reasonable assumptions and create the right plan for your needs. Here are some thoughts to help you prepare for the conversation:
Visualize your future — Create a "wish list" of things you might want to do/see/enjoy during retirement and use it as the basis of your plan. Time with family, community service, traveling, practicing a hobby or starting a business all have price tags. Figure out how often you might want to participate in each activity, calculate the annual costs in today's dollars and record it on a budget worksheet.
Consider your lifestyle — Think about where you want to spend your days and how that might change over time. Some people travel more during the first 10 years of retirement, while your second decade may focus more on hobbies and family time closer to home. Be sure to consider the cost of living in your retirement destination and calculate at least 30 years of income needs — with the average U.S. life expectancy at 78 years, many people will live well into their 80s and 90s. Our Lifespan Calculator can help you find your own number.
Estimate your income and expenses — One method of estimating for retirement is to assume your current lifestyle and consider which of today's expenses might decrease or increase during retirement. Starting with this year's after-tax income, subtract expenses that might decrease in retirement, such as clothing, debts or commuting expenses. Add to this any expenses that might increase, like health expenses, travel, hobbies and entertainment. The total could be considered a year's retirement target and extrapolated as needed for the remaining years.
Create a detailed budget — It takes some time, but estimating specific monthly expenses is a good way to evaluate what you will need long-term. Jot down your Pre-Retirement expenses (today) and estimate what they might be during retirement, using categories such as housing, utilities, transportation, insurance, food & entertainment, loans and legal obligations, miscellaneous and charitable contributions/gifts. Note if they are essential (must have) and discretionary (nice to have). Your financial representative can help you adjust for inflation and taxes and extrapolate annual costs required to cover 30 years of retirement.
Create a plan to meet your goal — If you don't have all the answers, don't worry, your financial representative will help you assess your retirement needs and create a holistic financial security plan to achieve your goals.
Remember, retirement is not just leaving your job, it is building the framework for the rest of your life. Whatever your age, it is critically important to have a financial security plan, consistently save for retirement and regularly check your progress to ensure you are on track. Your financial representative is your resource to help you develop the plan and reach your goals.