You probably wouldn’t drive to an unfamiliar destination without a map or GPS. So why are you heading toward retirement — a pretty significant journey — without a plan?
Granted, you’ll get there with or without guidance. But you’re much more likely to arrive happy and prepared if you spend some time writing out your goals and how you’re going to pursue them.
Here are some ideas to get started:
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Step 1: Develop an income plan.
When you stop working, your paychecks stop as well. It’s critical that you know where your money will come from in retirement.
Create a budget now so you’ll have an idea of how much you’ll need every month. Then add up all your protected income sources: Social Security, pensions, annuity payments. Is there a gap? If so, create a plan to help fill it. Don’t forget to factor in your spouse and anyone else you’ll want to take care of when you die as part of your planning.
Step 2: Calculate your risk tolerance.
If your portfolio were to drop 30% in the next year, how would that affect your ability to pursue your retirement goals? A lot depends on how close you are to calling it quits. Do some serious soul-searching to determine how much money you should have in growth-based financial vehicles, which carry more risk, and how much you should have in fixed financial vehicles.
Step 3: Don’t forget the “HIT” List: health care, inflation and taxes.
An often-overlooked area of retirement planning is inflation. In 1990, the cost of a first-class postage stamp was 25 cents; today it has almost doubled to 49 cents. If you need $5,000 a month to meet your current spending needs, how much will you need 10 or 20 years from now? Taxes and health care costs are also likely to rise. Don’t underestimate the future costs of these basics.
Step: 4: Decide who should manage your finances.
Whether to manage your own money or hire a financial professional is a big decision.
If you choose to do it yourself, make sure you do your homework and continue to stay up to date on all the options available to help preserve and grow your money. Keep your emotions out of it. And don’t rely too heavily on friends or relatives for advice. Your best moves will probably come from research — not the guy at the barbecue.
If you decide to hire a financial professional, consider working with a fiduciary. By law, a fiduciary must have your best interests in mind when making recommendations.
Make sure your financial professional has the heart of a teacher and is willing to spend the time necessary to help ensure you understand the recommendations he or she is making. Look for someone who is experienced and focused on retirement and income planning. And be sure you connect on a personal level. This person will be responsible for creating a strategy to help protect and grow your assets, so you don’t want to dread your interactions.
Even with a solid retirement plan, you’re bound to hit some bumps in the road. But it can help you be better prepared to deal with those problems and keep moving toward a better future.
Kim Franke-Folstad contributed to this article.
-
The AI Doctor Coming to Read Your Test ResultsThe Kiplinger Letter There’s big opportunity for AI tools that analyze CAT scans, MRIs and other medical images. But there are also big challenges that human clinicians and tech companies will have to overcome.
-
The Best Places for LGBTQ People to Retire AbroadLGBTQ people can safely retire abroad, but they must know a country’s laws and level of support — going beyond the usual retirement considerations.
-
Financial Planning's Paradox: Balancing Riches and True WealthWhile enough money is important for financial security, it does not guarantee fulfillment. How can retirees and financial advisers keep their eye on the ball?
-
A Confident Retirement Starts With These Four StrategiesWork your way around income gaps, tax gaffes and Social Security insecurity with some thoughtful planning and analysis.
-
Should You Still Wait Until 70 to Claim Social Security?Delaying Social Security until age 70 will increase your benefits. But with shortages ahead, and talk of cuts, is there a case for claiming sooner?
-
Retirement Planning for Couples: How to Plan to Be So Happy TogetherPlanning for retirement as a couple is a team sport that takes open communication, thoughtful planning and a solid financial strategy.
-
Market Turmoil: What History Tells Us About Current VolatilityThis up-and-down uncertainty is nerve-racking, but a look back at previous downturns shows that the markets are resilient. Here's how to ride out the turmoil.
-
Could You Retire at 59½? Five ConsiderationsWhile some people think they should wait until they're 65 or older to retire, retiring at 59½ could be one of the best decisions for your quality of life.
-
Home Insurance: How to Cut Costs Without Losing CoverageNatural disasters are causing home insurance premiums to soar, but don't risk dropping your coverage completely when there are ways to keep costs down.
-
Markets Roller Coaster: Resist the Urge to Make Big ChangesYou could do more harm than good if you react emotionally to volatility. Instead, consider tax-loss harvesting, Roth conversions and how to plan for next time.
