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Smarter Office Blog

It’s Never Too Early - or Too Late - to Plan for Retirement

 

Saving for retirement is the financial priority of a lifetime, yet many people treat this necessity as optional.

While happy retirements can mean different things to different people, they all require some type of funding. If you haven’t begun planning your retirement, the following checklist will help you get started.

Know your specific needs. 

Make sure you have a clear understanding of how much money you will need to retire comfortably. Many people find that their expenses drop during retirement. Their children have grown, they've paid off their homes, and they are no longer responsible for costs and taxes related to working. That said, higher healthcare costs can offset these savings. You may also need to pay someone to help with everyday tasks as your health declines. You will become eligible for Medicare at the age of 65; however, you may still need supplemental coverage. Most experts suggest that you plan on needing between 60 and 80 percent of your pre-retirement income, but you should adjust this figure based on your own circumstances.

Cut back on expenses.

Even people who believe they are living frugally usually waste money on a daily basis. Whether it's stopping for coffee on the way to work or spending extra money on clothing, stylists and manicures, non-essential expenses add up. At the same time, you should consider the opportunity costs before cutting expenses. For instance, if you are a self-employed entrepreneur who can make more money in the time it would take you to landscape your own yard, it might be better to hire someone else to do it.

Eliminate debt.

Under ideal circumstances, you should be free of a mortgage, student debt and vehicle payments by the time you retire. If you have a 30-year mortgage that looks to bleed into your retirement years, consider switching to a 15-year plan if you can afford the higher monthly hit. Make sure to limit your use of credit cards and try to pay the balance off every single month.

Invest smartly.

Whether you're working on your own or with a professional money manager, it's important to balance concerns over return objectives and risk aversion. How much are you willing to risk to achieve your long-term financial objectives? Should some of your money be set aside for risk-free treasury bonds? Make sure to carefully differentiate necessities from luxuries to create a diversified portfolio designed to meet your unique expectations.

Create a plan and stick to it.

Consistency is the key to a good retirement plan. Ideally, your retirement account should be self-perpetuating. If it's not, there's a good chance you will run out of money while you are still alive. Due to inflation and increased cost of living, your plan may not remain self-perpetuating over time. Most retirement experts agree it is possible to retire at 65 and spend about 4 percent of your savings every year. If your numbers suggest otherwise, you may want to keep working until you've saved more money.

Is it Too Late to Start Planning?

While it's always best to plan your retirement as early as possible, it’s never too late to take steps toward securing a more comfortable future. In most cases, retirement income comes from a combination of Social Security income, personal savings and an employer pension. If you have a shortfall, you can make it up by retiring later or working part-time.

If you have marketable skills, you may be able to create a base of business that supplies enough income to keep you from needing to dip into your retirement savings for a few years. You can start collecting Social Security income when you are 62; however, the younger you are, the lower the amount you will receive. At the same time, you will also receive Social Security money for more years if you choose to start receiving it early.