June 9, 2017

I Want To Retire Someday: How Do I Get Ready?


What if you eventually want to retire, just not now? You are not there yet. Maybe it is a savings and money issue. Maybe you enjoy your job and the stimulation it gives you. Maybe your responsibilities with your family must be front and center for now. Maybe retirement scares you a bit. That just makes you normal. For whatever reason, you want to remain in the workforce, but would like some suggestions on how to prepare for the day when you are ready.

Here are some important concerns:

A) Make Your Financial Projections: Get a paper and pencil, spreadsheet program on your computer, or anything that will help you with the following:
  • What is your projected income from now until you retire. Obviously, this is a guess. Your job might disappear tomorrow. But, based on your past situation, you should be able to make an educated guess of what you expect to make from now until you do retire. 
  • What do you expect to receive from Social Security? Avoid the "it won't be there for me" panic attack. We don't know the future, but we know the present. If Social Security undergoes revisions, those changes won't take effect immediately, they will be well into the future. So, for now, use what is real today. You get a yearly report that tells you what you can expect based on your past earnings. Do you think you will have to take your payments as early as allowed, or will you be able to wait? There are logical reasons for both courses of action that are based on your status. Add that monthly amount to your projections.
  • What is the current status of your retirement savings and investments? You can't predict what the market will do. You can project how much you plan on saving and investing in the years ahead. Using a conservative growth projection, what should you have when you are ready to retire? What do you need to have available when you retire?
  • Here's a biggie: what about health care costs? None of us knows what the future holds in this area. Personally, the only thing I expect are prices to rise rather dramatically, deductibles and copays to increase, and coverage to get skimpier. Plan on a 10-15% increase every year until you are eligible for Medicare (or its successor). Even after you turn 65, the average American will spend $250,000 on medical care . 

OK, now with those figures available to you, can you live on that for 30 years? People in good health today who are in their 40s or 50's can expect to live into their late 80s or mid 90s. If you retire sometime around 65, you will have to take care of yourself for another 30 years. Can you?


B) Make Your Lifestyle projections: Your financial situation will determine the overall structure of the life you will lead in retirement. Lifestyle issues will determine the quality: whether it is enjoyable and satisfying. Are you ready?
  • Where will you live? Many folks want to escape weather they don't like and use retirement as the motivation to move somewhere more to their liking. Or, their family lives somewhere else in the country and moving closer would make them happier.
  • Others like the roots they have established where they are, have family and friends nearby, and don't want to go anywhere. Moving to a retirement community on the other side of the country would never cross their mind. Aging in place is the plan.
  • Do you envision yourself in an "active adult" community, an age-restricted setup, an urban or rural environment, or selling everything and becoming a nomad in an RV?
  • What about the complications that arise when one or both spouses are with each other 24/7? Trust me, this is a a major adjustment for both partners. No matter how many books on relationship building you've checked out of the library, and how much you love your partner, being together all the time is tough without some planning.
  • Do you have something besides work that you love to do? If work is your vocation and avocation what will you do when you don't have that anymore? Do you have any interest, passions, or hobbies you'd love to explore? It is best to figure that out before you walk in the door of your house, retired, with no idea what to do next.

I've made the point many times in multiple posts that retirement is a huge adjustment for anyone. I don't care how well prepared you think you are, there are things you have not foreseen that will happen. Such uncertainty shouldn't freeze you in place. Life is all about change. There is no way to cover all your bases ahead of time.

So, what to do? Plan, plan, plan. Then plan some more. Consider everything you know and things you know you don't know. Then, when the time is right for you, just do it. You will learn to adjust. You will struggle, grow, panic, and thrive. That is life whether you are retired or not.

And, as I begin my 17th year, I can vouch for the satisfaction that comes from having your time and your life under your control.


7 comments:

  1. We did a good job of projecting what savings we would need, and learned early on how to be frugal and to find lots of activities in life that we love and can pursue even as we get older.. but.. as you mention, unforseen events,feelings, and reactions do come to visit!!! The more flexible you are with your thinking.. the better life in retirementwill be! We've navigated a few 180 turns and done ok.. at first I beat myself up over "mistakes" I decided we had made, now, into our 4th year of retirement, we have lots of new information about ourselves and how we want to live.. it's a little different than when we started!! And I suspect we will change again, as time passes..I think it's really important to develop flexibility and the idea that retirement is not a place you arrive, it is an on going journey, just like the rest of life!!! I think the single most important thing is: To control debt and pay off your house if you can..as early as possible.Sacrifice a little while you are younger and still working, to gain security.. it IS worth it!!!

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    1. I know there are financial advisors who believe it is not best to pay off a home mortgage for both tax and investment reasons, but I am in your camp. Having the biggest expense of your life taken care of, and owning where you live free and clear is a tremendous feeling. Plus, as you get older the equity can be used by selling the home and using the money for the buy-in to a retirement community. If you find you need more cash flow a reverse mortgage is also possible, though the costs are high and a RM must be approached with care.

      Yes, flexibility can be the key to a satisfying retirement. Letting go of long-held beliefs and habits isn't easy, but necessary.

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  2. Retirement and financial planning goes hand in hand. Didn't we all have to manage our finances and life prior to retirement? I like what you said about making projections based on the present not the gloom and doom projections. Like Madeline says, it is an ongoing journey. Trust that whatever comes up, you will deal with just as you have in the past. I'm confident that no one of us got to this point without a few wrenches thrown into the mix that we've coped with in the past. Financial management aside, manage life and that includes a healthy lifestyle that may mitigate some of the decline of ageing and medical insurance costs. I think it's our responsibility to live actively and responsibly at any age. We all must be mindful that the fairy tale retirement that has us cruising along with a cocktail in hand isn't reality for everyone. Life presents itself in many forms pre/post retirement.

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    1. All so true, Mona. Trying to predict what the fine folks (!) in Washington will do about health care, retirement, and all the other issues that affect us is a waste of time. We are ultimately responsible for our own well-being, so plan accordingly.

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  3. I recall many years ago when I was interviewing financial advisers they all asked me the same question "What kind of lifestyle do you want in retirement?" The question was never more specific than that and I thought it was a ridiculous question. My answer was always the same "I want the best lifestyle possible." If I get to choose any lifestyle why wouldn't I choose a great one? As Robin Leech said on Lifestyles of the Rich and Famous "Champagne wishes and caviar dreams" - sounds good to me.

    Of course we don't really get to 100% choose, there are children to raise, employers that downsize, markets that don't always perform as you expect, in other words life happens. Planning is great and you should do that, I did, but I didn't have any particular retirement planned. I just did the best I could, I was a disciplined saver, and when retirement came I would take stock of what I had and adjust my lifestyle based on what resources I have at the time.

    As it turned out the saving plan worked out and we have been retired for 2 years now. With 3 months down south away from our cold northern winters and a month in Europe each year we have what some would call a "dream retirement" but other than the travel we live pretty much as we did before. We have the luxury of time to do things I wish we'd had the time to do when working but honestly, other than the travel, we live exactly as before. We live in the same small house, we hike with friends, I go to the community center gym a couple of times a week, we have a wonderful time enjoying our grandchildren, putter around the garden and so on. If we weren't able to travel it wouldn't have been any great loss, it's nice but not essential to our "lifestyle", we'd adjust.

    I will say though that if you aren't laid off or pushed into retirement some other way it can be tough to "pull the plug" on your job but now that I've done it I wonder what I was worried about. Retirement is just like regular working life except no one brings you something to do each day, you have to figure that out yourself. The upside is you get to choose what it is that brings you the most joy and then you get to do that. It seems like when I was working I had to fit life in around work, now I get to just live my life.

    One thing people sometimes fall into is being afraid to spend the money they've saved. I can understand that, you've spent decades scrimping and saving for the future and may have built up a substantial nest egg, it's hard to let it go. The way to look at it, in my opinion, is that you saved that money so you could spend it and when you are retired the future you were saving for is now. Enjoy!

    - David

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    1. An excellent summary of a retirement journey that is unfolding in a way that is pleasing to you. Thank you, David.

      The last point about spending the money that has been saved is one that I still struggle with, even as I begin my 17th year of retirement. We don't know what lies ahead and we don't know how long we will live, so those reasons keep me from enjoying more of our nest egg. As you said, "it's hard to let it go."

      We don't spend the amount the investments increase each year, so the nest egg continues to grow. Our kids tell us to not keep it all for their inheritance but to enjoy it now. I believe them but my lifetime habits of living beneath my means is a hard habit to shake!

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  4. Well, Bob, when I read this, I find that I can put a check mark beside every item on the list. I guess I'm ready. Now, if I could just break the habit of going to the office every day...

    Jude

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