It has been hard just making ends meet month after month and now you are faced with creating a plan for the next 20 or 30 years of your life with A LOT of different unknowns and probably not quite enough savings.
However, you can do it. And this guide is designed to help you jump in. Here is a 5 step plan for how to retire — no matter how much you have saved or not saved:
Step 1: Figure Out What You Want to Do in Retirement
The people who are happiest in retirement are those that have a purpose for this phase of their lives.
It is best to retire to do something, not just to escape whatever you do to earn money.
Maybe think about your retirement in 5 year segments and consider what you want to be doing and what will be important to you in each segment. Here are a few resources to help you:
- 9 tips for figuring out and focusing on what you want to do in retirement
- 120 ideas for what to do in retirement
- Write a retirement manifesto
Step 2: Write Down “a” Retirement Plan (Not “THE” Plan, Just “A” Plan)
A lot of potential retirees have “retirement block” — like a writer with writer’s block, many potential retirees just don’t know how to get started planning their future.
The cure for retirement block is the same as writer’s block. Just jot some things down. Want to know how to retire? Start somewhere. Anywhere. And know that you are probably not going to get a final plan the first time around. In fact, you might feel shocked by how bad your future finances appear, but don’t worry, there are lots of ways to “fix” a retirement plan.
Retirement calculators make it easy to get started. Just answer the questions and don’t be afraid to put in the wrong information. Whatever you write down the first time is not going to be your ultimate retirement plan. You will probably need to make some major adjustments.
However, be sure to use a reputable and detailed retirement calculator.
Too many calculators make a lot of assumptions that may or may not be relevant to you. And, many of these tools focus only on how much savings you need for a secure retirement.
The best retirement calculators, like the NewRetirement calculator, will ask all the right questions. Look for a tool that:
- Asks about you and your spouse separately.
- Gets into the details about your debt.
- Let’s you enter information about each individual savings account.
- Allows you to put in different levels of saving, spending and earning — none of these are going to stay the same throughout retirement.
- Helps you think through medical and long term care costs.
- Allows you to model different scenarios for your savings, housing, spending levels and more…
- Enables you to save your information so that you can update it later as you make decisions and strengthen your plan.
Step 3: Play with Your Retirement Plan and Fix the Problems
Once you have a baseline plan in place, you will begin to see how to start fixing what might be wrong about your plan.
And, don’t worry if you don’t have enough savings. Here are just a few of the many other options you have for improving your retirement finances:
Delay the Start of Social Security: Starting Social Security at your full retirement age instead of at 62 can sometimes mean more than $100,000 over your lifetime. Use a break even Social Security calculator to assess the best time for you to start. Or try different start dates and amounts in the retirement calculator to see the overall impact on your plan.
Boost Your Investment Plan: Depending on your level of savings, getting a better rate of return, reducing investment fees and improving your tax efficiency can be great ways to insure a more secure retirement.
Invest in a Lifetime Annuity: Having adequate income for life is the biggest problem facing most retirees. A lifetime annuity is one way to give yourself the income you need — guaranteed for your (and your spouse’s) lives. Buying an annuity locks up your savings, but it can greatly reduce stress. Explore lifetime annuity pros and cons.
Work Longer: There are so many benefits to working longer — social, emotional, intellectual and financial. And, it does not have to be nose to the grindstone forever. There are lots of ways to make work a bigger part of your retirement plans — an extra year at your job, a part time gig, a sabbatical instead of retirement or start your own side business. Try out different work scenarios in your retirement plan.
Tap Home Equity: If you are like most households, your house is your most valuable asset — exceeding your retirement savings. If you own your home, you can give a serious boost to your retirement plans by downsizing or getting a reverse mortgage. This retirement calculator lets you model these strategies. See which works best for you and when might be the best time to tap your equity.
Get Creative: Desperate times call for creative measures. If you are nearing retirement and are short on adequate funding, you may need to start thinking outside of the box. Getting a roommate, retiring abroad, and finding passive income streams are a few ways to get creative to fix your retirement plan problems.
Spend Less: Anyone can retire at any level of income and savings — it is just a matter of spending less and making do. Some people manage to make retirement work on Social Security alone.
Step 4: Make Decisions: Set a Retirement Date — Tell Everyone!
You have documented what you have and researched and refined your options. Now it is time to finalize some decisions and commit to your plan. Sharing your ideas for how you will retire will help make it real for you.
Of the many important dates, you will probably want to set an official retirement date for yourself. Even if you will be easing out of work or getting a retirement job, don’t be shy about celebrating this important milestone in your life. Retirement is a major accomplishment.
Retirement date aside, you will want to take note of all of the important events in your plan (start of Social Security, mortgage is paid off, time to downsize, start withdrawals from savings, etc…) and be prepared to adjust them as necessary as you progress through retirement.
Step 5: Jump In and Retire: Take the Leap of Faith
Research shows that people feel A LOT of stress and anxiety in the years leading up to retirement. However, most everyone feels great in retirement. The retirees who went through a rigorous planning process to figure out “how to retire” expressed the most satisfaction with retirement. However, even those not as prepared find ways to make it work and enjoy this time of their lives.
So, as the saying goes: jump right in, the retirement waters feel fine.