Have You Planned for Your Retirement?

You spend your life saving for retirement with the hope that at some point, you will be able to confidently leave your job for a relaxing retirement. Have you actually created a plan to help you reach this point?

You won’t be able to withdraw an unlimited amount of money in retirement, so a retirement budget is a necessity. Some retirees decide they will retire at age 65 without reviewing their actual income needs and ensuring that their portfolio can support those needs. They often regret their failure to create a more in-depth retirement plan when it’s too late. Years before you retire sit down and review your probable monthly expenses. Perhaps you will decide that you only need about 80% of your end salary in retirement. By the way, there is no “right” answer for everyone.

First, look at your current expenses and decide which ones will most likely change in retirement. The most common changes in expenses involve housing, health care, taxes, and travel.

Next, look at your probable income sources: Social Security (waiting longer increases your potential income), IRAs and 401(k)s, savings, rental properties, or possibly a pension or buyout package.

Now decide how much of a portfolio you will need to support your income. Aon Hewitt now projects that the average “full-career” employee needs to have 15.9 times their salary saved up at age 65 in addition to Social Security income to sustain their standard of living into retirement. ¹

Not sure you will have enough? Retiring later might make a substantial difference. If you retire at 70 rather than at 65, you are giving your retirement savings five additional years of compounding interest and growth. Think of what that could do for you if your retirement nest egg is well into six figures.

Watch out for typical pitfalls during retirement that can cause you to stray from your retirement budget. The most common budget-wreckers can include:

• Loaning or gifting money to family members
• Withdrawing at a higher rate than your portfolio can sustain
• Accumulating unnecessary debt that is not easy to pay back with your budget

Planning ahead for retirement, creating a carefully thought-out budget, and having the discipline to stick with it – will make a big difference in the long run. A financial professional can help you review some of the variables when planning for a more stable retirement, and enable you stay on the right path.

¹marketwatch.com/story/how-to-know-if-you-have-enough-to-retire-2013-05-25 [5/25/13]