It’s an unusual time for people approaching retirement. While everyone wants to know if they are financially ready to retire, rising inflation and a slumping stock market may be fueling doubts. Some – especially those without a solid financial plan – may wonder if they need to keep working longer until there is more financial and geopolitical stability.
I’ve worked with many individuals and couples who needed help to feel financially secure in retirement. Many have taken an initial stab at planning, taking online financial “quizzes” and running numbers through calculators to find answers.
For anyone is this position, here is a list of recommendations to begin the retirement planning process.
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.
Understand Your Financial Position
Start by answering a few questions; the answers will help serve as the foundation of any plan. The questions include:
- What assets do you own that can be used to fund retirement?
- How much do you plan to spend each month in today’s dollars?
- What kind of lifestyle do you want in retirement?
- How long will your finances sustain you?
- Do you want to leave money for your children and grandchildren?
With this information, a financial adviser can develop a comprehensive financial plan. To ensure that a person doesn’t run out of money in retirement, the plan is built for each person’s life expectancy. Life expectancy is often higher than what people might think – according to the Social Security Administration, there’s a 30% chance that men will live to age 92 and women to age 94. Families need to ensure that their portfolios can sustain living 20-30 years after retirement.
Should You Budget or Track Spending?
Many people don’t have a formal budget. That’s OK – budgeting can be helpful for some and emotionally draining for others. But it’s important to understand what makes up current spending in order to understand what spending looks like in retirement.
One way to build the financial plan is to assume spending is the same during working years and retirement. This assumption, though not exact, provides for some flexibility if anything changes – an important part of building a 30-year plan.
Sometimes families spend more in retirement for a number of years while both spouses are in good health. For example, a couple may feel they have a good handle on their retirement spending if they spend $120,000 annually with no mortgage payment or other debt.
However, what if that couple wants to travel more, spoil their grandchildren with gifts, and leave a decent financial legacy for their children? If that's the case, they may need to make some changes so their portfolio can accomplish these new goals.
Gather a List of Specific Investments and Assets
Next, look at your current assets. Typically, we count only the assets that meet certain criteria:
- Assets that are investable. These include cash, stocks, bonds and mutual funds.
- Assets that can/will be sold for investment. A common example is a business.
- Assets that produce income. These can include rental properties or royalty payments.
A Financial Analysis Helps Determine Your Long-Term Plan
To build a plan for an individual or couple’s unique needs, financial advisers often use software programs that determine how wealth can be spread out over 20-30 years to cover all expenses.
As just one example, an analysis might consider what would happen if you retire today, and the market begins a three-year bear market. Will the portfolio sustain the desired spending or run out of money?
A financial analysis provides insight into how your retirement plan will really work. And, in an effort to make certain your plan stays on track, we analyze it annually, even during retirement.
One way to get started on the goal to take charge of your finances would be to perform a self-audit with the above questions. This can help provide a baseline of information to begin developing a structured retirement plan together with your financial adviser.
As always, remember to consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision.
-
Here's How To Get Organized And Work For YourselfWhether you’re looking for a side gig or planning to start your own business, it has never been easier to strike out on your own. Here is our guide to navigating working for yourself.
-
How to Manage Risk With Diversification"Don't put all your eggs in one basket" means different things to different investors. Here's how to manage your risk with portfolio diversification.
-
How Much Money Is Enough to Be Happy? Can You Have Too Much?The relationship between money and happiness is complicated, but the experts agree on these three eye-opening fundamentals.
-
Five Year-End Strategies You Can't Afford to MissInstead of making New Year's resolutions, consider making some money moves that could help save you big bucks on your taxes.
-
Buying an Insurance Policy: Three Ways to Do ItYou can buy an insurance policy through an insurance agent or broker or on the internet. Which way works best for you?
-
10 Ways Your 1031 Exchange Can Go Horribly WrongDon't let your tax-saving strategy become a financial nightmare — discover the hidden pitfalls that could turn your 1031 exchange into a costly disaster.
-
From Entrepreneur to Retiree: Boosting Your Business' ValueWhen business owners contemplate retirement, their first step should be maximizing the value of their biggest asset. Here are a few steps that could help.
-
You've Got a Trust: Now Who Should Be the Successor Trustee?You've set up a trust to protect your assets and your beneficiaries, but you still must choose the right person to execute your wishes. Here's how to do that.
-
Three Ways Fiduciary Financial Planners Put You FirstFiduciary financial advisers are required by law to work in your best interest. Here's how they are key to intentional and efficient financial management.
-
How Long-Term Care Insurance Has Become More FlexibleToday's long-term care insurance offers retirees more appealing options, which can preserve assets and protect the financial stability of a healthier partner.
