Planning for retirement should start early and be an integral part of an individual financial plan. People are living longer in retirement. A person who retires at age 65 (after working 35-45 years) should accumulate a retirement fund that is large enough to last 25 years or longer.
Many factors influence retirement planning. Here are some of them.
- When do you want to retire?
- Determine the advantages and disadvantages of retiring early (ages 55-60) versus later retirement (age 70 and older);
- What is your debt at retirement (mortgages, loans, etc.)?
- Planning to travel, relocate?
- What is your income (Social Security, pensions, interest on investments)?
- What are your assets (home, property) and investments?
- Are you planning to work part time?
- Planning to downsize your life?
- What big expenses (car, appliances, and home repairs) are needed before retirement?
Determine financial responsibilities in retirement
Assess your financial responsibilities during retirement. Consider monthly living expenses, relocation and travel plans. Will dependents continue to rely on your support? Establish lifestyle goals that balance with financial goals. Without clearly defined goals, it is difficult to know where you are going and how you will get there.
Goals, goals, and goals
Setting a personal financial goal for retirement partly depends on the performance (meaning growth, yield, income and safety) you expect from investments. Understand the advantages and disadvantages of short-term, intermediate and long-term goals for investments. Retirement planning is, of course, primarily driven by long-term goals. While short term investments may be more rewarding they have tax consequences and may reduce the income needed reach your long-term goals. Diversify your investments.
Other retirement considerations
Here are some situations to consider when calculating retirement income and expenses.
- At retirement, will you own your home? If you are mortgage-free, your living expenses will decrease.
- After retirement, will you have health insurance? Your employer-provided health insurance might not continue after retirement. Medicare or Medicaid will be available, but will that be enough?
- After retirement, will you volunteer, go back to school, or start a small business?
Advice and information
A certified financial planner can advise you on retirement strategies. Local colleges, libraries and non-profit groups offer free retirement planning programs. Here are some other resources.