How to Plan Retirement When You Don’t Really Have a Plan
How to plan for retirement? It is a question a lot of people ask, but not as many answer.
Planning for retirement isn’t easy — and if you’re like most people, you’re probably putting it off. A recent survey by Wells Fargo found that only 69 percent of middle class respondents aged 40-59 (the prime retirement saving years) say they have a written retirement plan.
So, how to plan for retirement? Is it too late at 40? 50? 60?
Here are 6 easy steps to get on track and have the best retirement plan possible.
1. Get a Plan
Retirement planning does not have to be as difficult as it seems.
Two of the easiest ways to plan retirement are:
Both of these options will walk you step by step toward a retirement plan. And they are things you can do right now.
The Wells Fargo survey found that people with a retirement plan were better able to achieve savings goals and people with a plan saved almost double what those without a plan saved.
The real trick though is to make sure you not only document what you have, what you need and when you will need it, you also should develop a detailed blue print — including goals and milestones and monthly to do lists.
2. Keep Planning
So, is getting a plan enough?
No. The reality is that you can do a retirement calculator or set up an appointment with a financial advisor right now, and that is a great step in the right direction.
However, to create a successful retirement plan, you need to set up a plan now and keep planning every month. Plan now and plan often — adjusting as necessary.
Retirement planning is not a set it and forget it kind of endeavor.
3. Don’t Discount the Power of Part-Time Income
When you think about retirement, you likely envision a day when you will no longer work or earn any money.
For the typical American who retires in their early 60s, particularly if they are married, they could be planning for a retirement of more than 30 years, says Alan Moore, certified financial planner with Serenity Financial Consulting LLC in Milwaukee, Wis.
“It is nearly impossible to have saved enough money to cover all of the living and health care expenses for this long of a retirement,” he says. “What if instead of no longer working, they continued to earn some money?”
Moore suggests retirees continue to work for their previous employer, perhaps on a part-time basis. They also could do consulting work for other companies in their field of interest, or could work part time on a hobby, such as at a local zoo, teaching foreign language classes, or building custom kitchen cabinets — all things which his clients have decided to do after retirement to earn some money and stay active.
“Earning just a few thousand dollars a month can help them avoid tapping their retirement accounts for as long as possible, and to delay Social Security until age 70, which will greatly increase their chance of never running out of money,” he says.
If you are younger and just starting to think about your retirement, getting into a career you love and can do past typical retirement age is a great investment in your ability to live comfortably into old age, Moore adds.
4. Plan Carefully for Social Security
At age 62, when you can begin drawing from Social Security, you can access only 75% of your benefits.
If you wait until “full” or “normal” retirement age — either 66 or 67 depending on when you were born — you can access 100% of your benefits. But if you wait until age 70, you can access 132% of your benefits, which can translate to an additional $300,000 in benefits over the course of a couple’s lifetime or $100,000 during an individual’s lifetime.
The perks of delaying Social Security are obvious, but many Americans still collect early. Nearly 75% of the 36.7 million retired workers in 2012 received reduced benefits because they collected prior to full retirement age, according to the Social Security Administration’s 2013 Annual Statistical Supplement.
“This may stem from the fear that Social Security won’t be around forever, or just desperately needing the money, or a simple lack of education,” Moore says. “However, no matter the cause, it is almost always a serious mistake.”
Moore views Social Security as insurance against old age, since retirees are likely to run out of money by the time they reach their 90s. By maximizing Social Security benefits, then, retirees can plan for a longer, more comfortable retirement.
Try a Social Security Calculator to determine your optimal start age.
5. Avoid the Costs of Health Care
More than 80% of today’s retirees say health is the most important ingredient for a happy retirement, meaning that the majority value good health over even financial security.
But with that comes an increased importance on planning for the costs of health care in the future.
One mistake retirees make is excluding health care costs from their budget early in retirement, under the notion that they can cut spending on everything else once their health declines later in life.
But there could be a number of health care costs later in life, impacting your ability to maintain a comfortable retirement, so the earlier you plan for these costs, the better.
Connect with a financial planner today to make sure you don’t make any of these mistakes.
6. Retirement Planning Does Not End When You Retire!
Everyone wants to know, “how much do I need for retirement.” However, the best retirement plans are not about getting to one number.
A good retirement plan accounts for how you are going to use your retirement savings. How are you going to spend that one big number you have worked hard to save. You need to think about your retirement income needs not just how much you need to save.
Big questions to consider, include:
- Will you make monthly withdrawals?
- How will the money be invested?
- Can investment returns keep pace with inflation?
- Will you run out of money?
- Should you buy an annuity?
- Should you have separate accounts for vacations from money for monthly expenses?
- And more…
Some retirement calculators like the NewRetirement Retirement Calculator will help you visualize these post retirement issues.