Planning your future retirement is complicated. Creating a secure retirement plan requires that you know what you want and then being able to put together what you have to achieve your goals. While retirement planning is not child’s play, it might be easier if you think about the components of your plan as being a set of building blocks.
Your blocks will be sized differently than everyone else’s and your tower will not look like other’s, but it is possible for anyone to build a secure retirement with the set of blocks they have.
Before discussing how to stack up your blocks, you will need to know how tall to build — what are your needs for retirement.
To keep it simple, there are 3 issues driving what you need:
1. Your Spending: How much do you want to spend in retirement is the biggest factor driving how much you need for a secure retirement. The more detailed you can be in predicting your spending, the more secure your finances will be in the long run.
From detailed budgeting to planning for different phases of retirement, here are 9 ways to predict retirement expenses.
NOTE: Of course, you may find out that there is a disconnect between your desired lifestyle and your ability to fund it. You may need to make some compromises once you start building a retirement plan.
2. Your Own Health: How long you live and how much you need to spend on out of pocket healthcare expenses and long term care are big factors for figuring out how much you need. You might want to explore this guide to planning for healthcare expenses. Or, consider creative ways to deal with a potential long term care need.
You will also need to think about your own longevity. Here is a guide to life expectancy calculators.
3. Unknown Factors: Predicting inflation, investment returns and other unknowable events is part of figuring out how much you need. You can look at historic averages, or take a big guess at these numbers.
The NewRetirement retirement planner takes a unique approach to this problem. The system tells you what the historic averages are, but you can set optimistic and pessimistic predictions which enables you to determine a range for your needs. (And, it is always a good idea to shoot for having enough to cover your pessimistic scenarios… )
So, once you know how much you need, you will want to assemble your retirement building blocks and make sure they will be sufficient. There are around 8 resources that you will want to assess for your retirement:
1. Social Security: The great thing about Social Security is that you will keep getting this income for as long as you live — no matter how long that turns out to be. (Because this income is the foundation of most retirement plans, it is important that you delay the start of the benefit in order to maximize your monthly check. Use a Social Security Calculator or check out this Social Security strategy for married couples.
2. Pensions: You are lucky if you have a pension, these are increasingly rare and tremendously valuable in retirement. Like Social Security, income from a pension usually lasts for life.
3. Savings: If Social Security is your foundation, most people may want to treat savings as the frame of their retirement plan. Savings will usually determine exactly how tall your building blocks can go.
4. Income from Work: Working past the traditional retirement age — either part or full time — is a great way to stretch toward your retirement planning goals. There are so many benefits to work. Financially, you get income and both the ability to:
- Save more
- Postpone tapping into existing savings
Plus, there are numerous social, emotional and intellectual benefits of a retirement job.
5. Home Equity: If you own you home, tapping into your home equity is another way you can attain your goals.
There are numerous strategies for using home equity as part of your retirement plan. Home equity can bolster your finances in a variety of ways. You can:
- Downsize or get a reverse mortgage as ways to eliminate ongoing mortgage payments, reduce overhead and potentially cash out equity to use for retirement expenses.
- Rent out a room to increase retirement income.
- Retain home equity now and then tap into it in the future to fund longevity, a medical need or long term care.
To explore any of these strategies, use the NewRetirement retirement planner. Once you have set up your account, each of these scenarios can be modeled.
6. Community and Family: Many families rely on each other to help fund each other’s lives. Adult children help aging parents. Parents help struggling twenty somethings. An inheritance can sometimes help make retirement work.
It is important to think about family and friends as one of your retirement building blocks, but you need to make sure that all involved parties have clarity about everyone else’s intentions.
7. Insurance: Insurance is used to protect things. And, the right insurance is one way to protect your retirement tower from toppling. You will want to consider:
- Supplemental Medicare Coverage: Assess your coverage at least once a year — the plans change and your healthcare needs evolve. Compare plans here.
- Long Term Care Insurance: Planning for how you might deal with a long term care need is crucial to your retirement security. Long term care is terribly expensive.
- Lifetime Annuities: A lifetime annuity is a type of insurance that protects income. In exchange for cash, you buy an income stream that will last as long as you do. Annuities can be a great way to alleviate the fear of running out of money in retirement. Explore the pros and cons of annuities or use an annuity calculator to estimate how much annuity income you can buy.
- Life Insurance: Not everyone needs life insurance, but here are 7 instances where it could be a good idea for retirement.
8. Financial Know How: There are so many financial tips and tricks that can strengthen your finances and give you a secure retirement plan. Just consider the following overview:
- Investment Knowledge: From how to save (401k, Roth, IRA, 529, Health Savings and more) to how to allocate your savings and so much more, a deep knowledge of investments and investment strategies can improve your overall wealth and security.
- Tax Expertise: Taxes can take a big bite out of your retirement savings if you are not careful.
- Legal Issues: A lawyer can offer important advice — particularly around aging and estate planning which are sometimes overlooked in retirement planning.
- Debt: If you have debt, you probably want to explore the best ways to pay it down and rid it from your budget.
- Overall Planning: It may not be enough to have a set of retirement building blocks. You may want guidance on all the different ways of putting these assets together and using each one at the optimal time to stretch and grow what you have.
Contact NewRetirement and we can help match you to the right type of advisor for your retirement needs.
The NewRetirement retirement planner makes it easy for you to:
- Document your needs — setting different spending levels for different phases of your retirement.
- Assemble these retirement building blocks to meet your needs.
- Assess and reassess different strategies. Once you have set up your account, you can make changes and immediately see how each change impacts your finances — both long and short term.
- Create and maintain a detailed secure retirement plan.
This tool has been named a best retirement calculator by the American Association of Individual Investors (AAII), Forbes Magazine, The Center for Retirement Research at Boston College, MoneyBoss, CanIRetireyet and many more.
