Are you really ready for retirement? You’ve worked a long time in your career and you’ll be faced with the decision of whether or not to retire in the near future. This decision should not be taken lightly. With that in mind, following are 7 practical tips that can help you improve your retirement readiness and plan for that ever important day!
These 7 tips are a prelude to a Retirement Readiness Quiz that we will be launching in the near future. If you’re not currently receiving our blog posts, I encourage you to sign up for our eContent so that you don’t miss quiz.
TIP #1: UNDERSTAND THE IMPORTANCE OF PLANNING
Every once in a while a client will tell us that they don’t need to come in for their review because nothing has changed in their lives or that they trust that we are taking care of everything behind the scenes. While I appreciate the confidence that clients place in us, they are approaching this from the wrong angle.
Planning helps you to determine “if” something should change in your life. Just because your situation hasn’t changed, doesn’t mean that you shouldn’t change anything. (In case you didn’t notice, I just used a “triple-negative” in a sentence. “They” say that double negatives are bad; I can’t imagine what they would say about triple-negatives. Anyway, I digress….)
My point is that you may need to change some things even though nothing has changed in your life. Things such as how much you’re contributing to your investments, how much risk your taking with your investments, engaging in tax savings strategies, etc…
TIP #2: ESTIMATE THE SIZE OF YOUR RETIREMENT NEST EGG
When you are planning for your retirement readiness, it will be important for you to estimate how big your investment portfolio needs to be at retirement.
If you are working with a financial planner then they should have very detailed, sophisticated software to help you do this. But if you’re going at it alone, then here is a simple 5-step process that you can use that will help you estimate what you need.
STEP 1: DETERMINE HOW MUCH YEARLY INCOME YOU WANT IN RETIREMENT
Let’s say that you desire $200,000 per year of income.
STEP 2: DETERMINE THE AMOUNT OF OUTSIDE INCOME YOU WILL HAVE
Assume that Social Security and pension income will provide you with $100,000 per year.
STEP 3: SUBTRACT STEP 2 FROM STEP 1
This leaves you with $100,000 and is the amount (in today’s dollars) that you need to take from your retirement portfolio each year.
STEP 4: ESTIMATE INFLATION
Multiply the answer in Step 3 by one of the factors below depending on how long you have until your retire:
2.4 if you will retire in 30 years
2.1 if you will retire in 25 years
1.8 if you will retire in 20 years
1.6 if you will retire in 15 years
1.4 if you will retire in 10 years
1.2 if you will retire in 5 years
Let’s assume that you will retire in 10 years. Multiply $100,000 (Step 3 result) by 1.4 and you get $140,000. This is how much income you will need to withdraw from your portfolio beginning in 10 years to keep up with inflation. In other words, $140,000 in 10 years is equivalent to $100,000 today.
STEP 5: DIVIDE STEP 4 RESULT BY 4%
$140,000 / 4% = $3,500,000. This is approximately how much money your nest egg needs to be valued at when you retire.
TIP #3: BOOST YOUR RETIREMENT SAVINGS
Often times we know that we need to be saving more but there seems to be no money left over every month after the bills are paid. I’m gonna be brutally honest with you here. Many people enjoy the luxuries of life and hold onto to those things so tightly that they literally don’t have much money left over to save. So, in order to boost your retirement savings, you may have to let go of some of those things if you truly want to plan for the future.
With that said, here are a few ways you may be able to boost your retirement savings:
#1: Save some of your bonus or pay raise.
#2: Use a credit card to get cash back.
#3: Consolidate or Refinance student loans.
#4: Refinance from a 15 to a 30 year mortgage.
#5: Budget your discretionary income.
I talk in greater detail about these things in the upcoming Retirement Readiness Quiz.
TIP #4: MAXIMIZE YOUR SOCIAL SECURITY INCOME
The more you get from Social Security, the less you need to take from your investment portfolio, thereby increasing your chances of a successful retirement. The added benefit is that you may be able to improve your standard of living in retirement.
The biggest question that people ask regarding Social Security is “What age should they take it?”. This is a complicated area so it is highly advised that you work with a professional in this area. Generally speaking though, the longer you delay your benefit the more income you will receive. However, not everyone can afford to do this or should do this.
There are a couple of different strategies that you can take advantage of to increase your Social Security income. One is called a Restricted Spousal Application Strategy and the other is a Delaying to Age 70 Strategy. There is a lot that goes into choosing which strategy to implement, so I won’t go into that here. You’ll have to wait for the Retirement Readiness Quiz to launch to find out more information. Or if you are ambitious, you can peruse our website and YouTube channel to find my videos on Social Security.
TIP #5: DON’T PUT ALL YOUR FINANCIAL EGGS IN ONE BASKET
For many people the basket that is most easy to fill is the “employer basket”. So many things can go into this basket such as your income, insurance, 401k, pension, company stock, stock options, etc…
One event could cause much of this to become unraveled. Be sure to invest your financial eggs in other places as well to protect against this risk.
TIP #6: PLAN FOR HOW YOU WILL LEAVE A LEGACY
Retirement Readiness involves more that just you. It also involves those that you leave behind should something happen to you.
Often times people don’t place a priority on estate planning items such as Wills and Trusts unless they’ve seen a family member deal with it. If you’ve not experienced a family member pass away with no Wills or Trusts, then you need to understand that it can be a very costly and stressful burden to bear.
But the good news is that you can learn from other people. Ask anyone who has gone through a situation like that and they will tell you to PLAN AHEAD!
If you have not done this, then I encourage you to begin talking with an attorney who can help you make sure your assets are properly passed on to who you wish, when you wish, and how you wish!
TIP #7: CONSIDER YOUR LIFESTYLE NOT JUST YOUR FINANCES
Perhaps you haven’t really thought about this, but retirement readiness involves more than just your finances. You must also consider what your lifestyle will look like to truly determine if you are ready for retirement.
Following are 5 questions that you should be asking yourself as you prepare for the all important day of retirement:
Question 1: Where Will You Live?
Question 2: What Will You Do?
Question 3: How Will You Find Fulfillment?
Question 4: How Do You Wish To Be Remembered?
Question 5: How Is Your Health?
Be sure to wrestle with these questions prior to pulling the retirement trigger.
I hope that you’ve enjoyed these 7 retirement readiness tips and you’ve found them helpful. As mentioned above, stay tuned for our Retirement Readiness Quiz that we will be launching soon. It will provide you with an estimation of how ready you truly are for retirement. And in addition, you will be able to receive more detailed information on the 7 tips in this article.
To be notified of when the Retirement Readiness Quiz launches be sure to sign up to receive our eContent.
How ready do you feel you are for retirement? Please share any thoughts, comments, or questions below.