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Getting Serious about Retirement Planning: 3 Simple Steps Thumbnail

Getting Serious about Retirement Planning: 3 Simple Steps

By Barbara C. Attardo, CFP®, AEP®, CDFA®

Most of us think about the lifestyle we want when we retire, even if it’s still a long way off. We make all kinds of plans—to spend more time with the grandkids, learn to paint, get more involved in charity work, or travel the world. The list is endless! But have you thought about whether or not your finances will be able to support your plans and what you need to do now to make your retirement goals a reality? If you’re not sure, you’re not alone. Whether it’s a year, 10 years, or more away, it’s never too early or too late to start planning! The following steps will help you get started.

  1. Clarify your current situation
    Take stock of where you are today. What is your current lifestyle? If you have no clue, don’t worry, most people don’t know!

    Let’s start with a few simple questions: at the end of each month (or year) do you have money left over? Add up your current sources of income (things like salary, bonus, rental income, and part-time work). Then take a look at your spending. Are you saving regularly or coming up short and withdrawing from savings or accruing credit card debt? (Look at your debt carefully to understand what it is really costing you, i.e., interest payments.) By keeping track of your monthly expenses you can calculate your current annual lifestyle and find out if you have money left over to invest. If you have large expenditures on the horizon (home renovations, college tuition, etc.), do you have a plan for how to pay for them? And, more importantly, can you afford them?

    Take a snapshot of where you are financially today by identifying and locating your assets (investments, real estate, etc.) and liabilities. It’s a good idea to calculate your total net worth (what you have minus what you owe). Include all of your various investment and retirement accounts and don’t forget your old 401(k) that you left with a prior employer.

  2. Revisit those retirement dreams, but think about the practical side too
    As you dream about the opportunities retirement could afford you, consider questions such as when to begin retirement, if you’ll stay in your current home or downsize, and if you’d like a vacation home or plan to travel. Is your current investment strategy aligned with your long-term goals and consistent with an appropriate level of risk? Begin to form your short and long-term objectives and think about how you’ll achieve them.
  3. Determine what financial resources and expenses you may have in retirement
    Consider the following questions:

    • Should you increase or maximize your retirement contributions?
    • Are you taking advantage of all the benefits your current employer is offering?
    • Can you save more?
    • What assets might you have in the future (real estate, retirement accounts, investment accounts, etc.)?
    • What is a reasonable rate of return to expect on your investments?
    • Do you anticipate receiving an inheritance or needing to support an elderly parent or family member?
    • Do you plan to work part time?
    • Which of your current expenses will decrease or be eliminated when you reach retirement (e.g., commuting costs, payroll taxes, life insurance, etc.) and which expenses will likely increase in retirement (e.g., travel, medical costs, etc.)?
    • Are you and/or your spouse entitled to social security benefits? Do you or your spouse have any deferred income (annuity, pension, or deferred compensation package from your employer)?
    • What income will you have in retirement?
    • What kind of medical coverage will you need?

Planning for retirement is as much an art as a science, and this is not a comprehensive primer. There is no one right path for everybody! Be aware of the trade-offs as you try to find the right balance between living your life today and providing long-term financial security for yourself and your family.

If you are finding the whole process a bit overwhelming, enlist the help of professionals. They can provide the assistance you need to take stock of your current situation, clarify your personal goals for retirement, and create a roadmap to help you get there so you can build a financially secure future.

Print version: Getting Serious About Retirement Planning