The Most Important Retirement Planning Question: Are You Good to Go?

retirement planning

The typical American dream for the average individual includes the receiving of quality education, getting a good job, raising a family, obtaining a two-car garage home, working for 40 plus years and then retiring. For the most part, this is a good plan.

Planning for your retirement is something you would have to think about critically, but you do not have to fuss about it.

It is a major life event and therefore needs to be well thought out.

If you follow certain recommendations and never renege on reaching your goal, there is in fact, a perfect chance that you would have a fulfilled retirement life.

Increasingly, workers are relying less on their employers for a sustained retirement income that will be enough to meet their needs.

According to the Bureau of Labor Statistics, 51% of private companies offered defined retirement plans to their staff. Out of that number, only 8% had a defined benefit (traditional pension) retirement plan.

With the weight of the retirement income resting squarely on his shoulder, it is necessary for the average worker to consider his readiness to retire.

The only person who will take care of the older person you will someday be – is the younger person you are now.- Unknown

If you are at that point in life or preparing for that point in life the paramount retirement question to ask yourself is, “Am I ready to go?”

This decision is primarily based on the critical questions of how to spend the retirement years and how much money will be needed.

Retirement planning is about finding well-defined answers to these critical questions.

It can help you avoid a life of regrets and financial stress.

Have you planned adequately?

Except you’re Bill Gates, you need to plan well in advance for your retirement. To begin your retirement planning, calculate how much you’ll need to get by in retirement. Carefully list in details, all your expected expenses weekly or monthly. Make sure not to leave anything out and add an extra for emergencies.

Do not bank on your Social Security to cover your expenses. Social Security benefits can only provide about 40% of your pay. The percentage gets higher if your wage is below average and lower if it’s higher than average.

An important retirement planning tool is the “4 percent rule”. The 4 percent rule is a practical guide used to figure out the amount of money a retiree should draw from a retirement account yearly.

The idea is to maintain a steady income flow while ensuring a sufficient account balance that will keep the income flowing throughout retirement.

The 4 percent rule allows you to withdraw 4% of your retirement savings in your first year of retirement and then adjust future withdrawals for inflation. By working with the desired annual income, the 4% rule can be used backward to work out how much initial retirement saving you ought to start with.

For example, if you plan on starting with an annual income of $50,000 with $20,000 coming for Social Security, you will have to make an income of $30,000 on your own.

If you take that $30,000 as 4% of your entire retirement savings, dividing it by 4% will give you $750,000. This is the amount you need to have as your nest egg.

What are the sources of your retirement income?

After you have arrived at the amount of income you will need, you have to find sources of the cash. If you’re fortunate to have a large pension, the bulk of your income will come from there.

However, some people would have to consider creating an income stream by buying an annuity. An immediate annuity provides you with a steady pension-like stream of payments throughout your retirement in exchange for paying a bulk sum of money upfront. Buying an annuity can provide you with enough income and your income should increase with an increase in interest rates.

Another source of income worth considering is dividend-paying stocks. Dividend-paying stocks can offer yields ranging from 1.5% to 5%. It is generally a good way of creating retirement cash flow because of the opportunity for an increased payout over time.

Other possible sources of retirement cash flow are Home equities, savings account, rent and royalties, inheritance and even a part-time job.

A careful weighing of these options will be the best preparation you can make towards a comfortable retirement.

retirement planning

How will you pay for healthcare?

It is essential you factor in healthcare expenses in your retirement planning. Although you are eligible for Medicare once you hit 65, there can be considerable out-of-pocket expenses.

Medicare doesn’t cover every health care cost and isn’t entirely free as so many people erroneously believe.

Some employers have a medical plan for retirement which you can key into. You can consider long-term care insurance. A long-term care insurance policy can be bought through an insurance company and helps defray the daily expenses of custodial care.

What is your debt profile?

Your goal should be to retire with as little debt as possible – if not completely debt free.

Credit card debt is usually the most injurious because of high-interest rates. Start eliminating those ones first. Even a mortgage with it low-interest rates can prove to be a burden in retirement. You can even delay retirement for a few years to clear all debts starting from the high-interest loans.

How do you want to spend your time?

While it’s super important to get your finances in good shape, it’s also important that you have the best time of your life as a retiree. To make your retirement years enjoyable, you should take the time to plan for everything, even the activities that will take up your time.

Think of how to enjoy your golden year after so many years as a worker.

Your personality will be a determinant in the type of activities you may choose to engage in during retirement. If you’re of a more outgoing nature, such pursuits like golfing, socializing, joining and participating in a club might suit you.

It will also be necessary to factor in your intended post-retirement activity into your financial planning.

A life spent in quiet contemplation, reading and gardening won’t deplete the old nest egg the way a lifestyle of traveling and socializing would.

Think of all the hobbies you have always wanted to explore but couldn’t due to insufficient time. Whatever you may want to do, start early to plan adequately.

Keeping your schedule filled with a few regular activities in retirement is very important. Several studies have observed that retirees who are active, sociable and who maintain relationships tend to be happier in retirement.

Your physical and mental health will also receive a boost when you are well engaged. Your risk of developing degenerative diseases like Alzheimer’s is significantly reduced.

Deliberating on the type of activities you might fancy during your retirement will give you ample time to plan for them and guarantee you make the most of your golden years.

For most parts, your life after work is under your control. By early and careful retirement planning, you can intentionally go about putting things in place for a wonderful time after years of work. How well you answer these questions will determine how ready you are to quit the workforce.

BA in Accountancy, he entered the entrepreneurial world by starting his first online marketing business in 2004. He is passionate about personal finance, self-development, the stock market, and a digital marketing addict. He strongly believes that financial knowledge combined with self-discipline is the key to achieving financial freedom.  He is also an avid golfer and a 15 handicapper.

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