4 Important Retirement Planning Steps

How do you retire? What do you need for retirement? What are important steps in retirement planning?

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Consider the following retirement planning steps. You may also wish to use the NewRetirement Retirement Calculator for a personalized analysis of your situation.

Step 1: The First Step in Retirement Planning is to... Assess your current financial situation

Retirement planning is just like any other budgeting process. You need to balance income and expenses – both now and for the rest of your life. The trick is that you must somehow account for the unknowable element of longevity.

A. Estimate Longevity: First you must estimate how long you and any other dependents (like your spouse) will live. Be optimistic when guessing about how long you will live. If your parents are alive and healthy at 85 -- and even if they are not -- you may well live that long or longer. There is a 50 percent chance that at least one partner from a couple in their 60s will live to the age of 95.

B. Estimate Retirement Expenses: Next, determine how much money you will need each year – be sure to account for medical expenditures, dependent living situations and inflation.

C. Tabulate Assets: Then, take stock of all of your assets – your house, savings, stocks, etc...

D. Identify Retirement Income: You should also identify any income you will have in retirement – research your social security benefits, as well as any rental, dividend, pension or other income.

E. Balance Income & Expenses: Finally reconcile your income with expenses.

F. Guarantee Income & Safeguard Assets: Consider how to turn your income and assets into guaranteed income so that you do not outlive your retirement savings.

If your assets can be stretched to create enough income to cover your basic expenses, you are in good enough shape. If they are not adequate, you will need to look for additional ways to reduce your spending and/or increase your income.

Step 2: Reduce Your Unnecessary Expenses

Housing, debt, extravagances, or unnecessary expenses should be reduced if your expenses are greater than your retirement assets.

  • Eliminate Debt: You really should not retire when carrying high interest debt.

    Credit card debt is a needless expense that can often be reduced without too much pain. Many people, through lack of organization or willful procrastination, carry large balances on high-interest lending products such as credit cards. The average family between the ages of 55 and 64 who carry credit card debt spend 31 percent of their income on servicing the debt.

    If you have a high balance on a credit card, try switching it to a lower interest product. Consolidate it to a lower interest loan or a tax deductible home equity loan. Find out more about debt consolidation.

  • Reduce Extravagances or Unnecessary Expenses: What about the second phone line you have in the house? Subscriptions to those magazines or newspapers you never read? Memberships you don’t take full advantage of?

    Be ruthless where you can and eliminate needless costs. Recurring expenses are often the most insidious but also should be the easiest to cut -- newspapers can be read online, cellular and landline phone services can be combined.

    Most every kind of expense has a less expensive alternative. Look at subscriptions, memberships, digital cable, etc. and see where the fat can best be trimmed.

  • Reconsider Your Housing: Your housing costs might be higher than they need to be. Ask yourself tough questions and get creative:

    • If you move to a smaller house or a less expensive community could you reduce your mortgage payments?
    • Could you move in with another family member and realize some savings and income from the property you sell?
    • What about buying a duplex that provides you a place to live and rental income from the other unit?

    Find out more about downsizing. Mortgage refinancing may be another way to reduce your expenses.

Step 3: Consider How To Increase Your Income

In order to increase your income, you have a few options:

  • Research Annuities: An annuity is a pension you buy yourself and it is a great product if you are looking for ways to guarantee your income in retirement. You can purchase an annuity with existing retirement assets or by getting a Reverse Mortgage on your home.

  • Continue working! Delaying your retirement date by a few years can really pay off. Or, perhaps you can work part-time for a few additional years. Learn more about working in retirement.

  • Delay when you start collecting Social Security: The longer you wait to start collecting Social Security, the higher your Social Security income will be on a monthly basis. Learn more about delaying Social Security.

  • Get a new job if you are already retired: If you are in a situation whereby you need to find a new job, look at employers that offer medical benefits and that have progressive hiring policies. These companies are often attracted to seniors as they are considered more reliable and trustworthy.

    And, perhaps you can secure employment in an industry about which you are passionate. For example, if you love golf, maybe you can work at the club – earning modest income and maybe even golf privileges too. Learn more about retirement jobs.

  • Apply for government programs: Federal and state governments offer many programs to help individuals in retirement – beyond social security. Medicare and Medicaid can supplement health insurance costs and food stamps can stretch food costs.

Step 4: Consider Products That Will Safeguard and Stretch Your Assets

You don’t want to live like royalty for the next 10 years and spend the following 10 living in poverty.

The bad news is that without reliable income in retirement you can never account for every scenario – illnesses, longevity, disasters, and more.

The good news is that many financial products and professional advisors exist to insure that you can live comfortably for the rest of your life.

Most notably, lifetime annuities are insurance products that offer guaranteed income for life. Lifetime annuities insure that you will NEVER run out of money.

There are also long term care insurance products that will cover assisted living expenses in the case that you develop an illness that requires constant care.

The NewRetirement Retirement Calculator Helps You With Planning

Visit the NewRetirement Retirement Calculator to find out how long will your money last in retirement, how well prepared you are and compare how your finances relate to the averages in your zip code. Plus, find ideas on how you can improve your retirement situation.

Easy Steps to a Better
Retirement Plan...

Use the NewRetirement Automated Retirement Assessment to compare options for improving your plan. Get the pros and cons on strategies personalized for you.