October 21, 2015 — Maybe the better question is, “Do you have a retirement plan”. According to Richard Russo in a recent MarketWatch Retirement Weekly article, having a plan greatly increases your chances of success. So if you don’t have one, now is a mighty good time to start. This article will explain what sorts of things should be in your plan, and how you can use it to help you achieve a successful retirement.
Russo, a senior financial adviser with Clarity Financial in Houston and author for Random Thoughts of a Money Muse, cautions that you shouldn’t get uptight about your plan if it isn’t working out exactly as you had thought. He says they are “extraordinarily imperfect… 20% science and 80% forecast (or art)”. He believes you should start your plan 5 to 10 years in advance of when you think you might retire. If you do, you can greatly improve your odds of success. Without one, your retirement could be like a ship without a map, a compass, or even a destination!
Retirement is a chance of a do-over on life – if you take it. Having a plan gives you a fighting chance at making that successful transition to the life you have always dreamed of living. But making the plan once and forgetting about is not the idea. Chances are your reality won’t be perfectly tidy – you will undoubtedly need to make adjustments along the way as your situation and external developments unfold.
What’s in a plan
There is no perfect prescription to what should be in a retirement plan. But here are some commonly included elements which you should at least consider having in yours. Many planners concentrate only on the financial aspects – we think you should expand the planning to many more lifestyle areas. You might want to put your answers, particularly those in the financial arena, into a spreadsheet so when you do yearly checkups against your plan you can easily change the numbers.
Over the years many Topretirements Members have taken the time to explain their retirement plan process, or at least the parts of it pertaining to where to retire. These articles are well worth the read for the insights you can gain as others go through this experience (here are some of our favorites):
Jay Michaels Retirement Tour
Sandy’s Active Adult Visits and Adventures
It Is Rocket Science: How This Space Engineer Planned His Retirement
Longevity and health
It is uncomfortable but important to give some consideration to how long you think you will live, and what you expect your medical situation to be. Although longevity and health are great unknowns, you have to do some planning so, for example, should you live to be 95 years old, you have the financial assets and living situation that lets you do that comfortably. It is not a good idea to simply say you will be gone by age 75 – because what happens if you are not, or you reach that age and have expensive medical conditions to cope with.
This is a starting point for the financial part of your plan. Undoubtedly your financial planner or even sources on the Internet can provide greater detail than this quick overview. There are many online financial calculators that can also be very helpful in this area. If you have a financial planner they probably have a set of questions and tools to help you with this.
Here are some elements that you probably should have in the financial part of your plan:
– Your current retirement assets
– What you expect to have for retirement assets by the time you retire (additional savings, portfolio performance)
– Expected Social Security benefit, and what age you expect to take it
– Any pension income
– Employment or other income (part time, investments, rents, etc.)
– Current monthly/yearly expenses
– Expected monthly/yearly expenses at retirement (don’t forget medical)
– Shortfall or Surplus (income minus expenses)
– If your plan indicates there is not going to be enough money to maintain your pre-retirement lifestyle, what are your preferences for solving that (working longer, part-time job, moving, reducing expenses, etc.)
Where you’ll live
Choosing a place to retire should be purposeful, not a default. We suggest that simply going on living where you have always lived, without at least considering the options, is not a good idea. Going with the default could lead to all sorts of issues that affect your happiness as the years go by, including: budgetary, safety, social, recreation, transportation, and maintenance. So devote some planning energy to whether you might be better off choosing a new location and type of housing situation – one that better fits your desired lifestyle, mobility, and financial situation. Here are some considerations:
– What climate do you want to live in
– What region/state/country do you prefer
– More favorable tax environment
– New environment – a college town, small town, city, region or part of the world
– Move near family or friends
– Type of housing (single family, villa, condo, rental, independent living, active community, cohousing, etc.)
You need to consider your current medical situation and the future. Don’t think for a second that your health can’t take a sudden turn for the worse – unfortunately it can.
– Need/want to be near a major medical center
– Do you need certain types of specialists
– Does your intended location have quick access to a good medical facility
What you’ll do in retirement
We like to say that if you haven’t thought about what you’ll do in retirement until the day you do it, you are probably headed for trouble. Folks who have hobbies and interests they like have a big advantage here. These are some areas you should jot down ideas about – are you interested in doing them, and if so, what would you like to do?
– Will you work in some capacity
– Help with your children/grandchildren
You and your spouse/significant other
– If married or in a relationship, what does your partner want to do in retirement on all the issues discussed here?
– Are your plans compatible, and if not, how are you going to resolve your differences? (see “What to Do If You and Your Partner Don’t Have the Same Retirement Plans“)
Your plan for very old age, should you be so lucky to achieve it
Someone said that you should think about retirement in 10 year increments. As an example, lets say you retire at 60. Your activities and interests are probably pretty close to those of your working days, except now you have more time to do them. But as the decades go by, from 70 to 80, 80 to 90 and even above that, you are likely to slow down. The type of place where you can live comfortably will change. You might lose your ability to drive, and your health will probably decline or at least have some rough patches. So your plan should give some attention to your preferences on these considerations (your thoughts on these points might change dramatically over time, but at least you will have thought about them):
– Independent living, assisted living, CCRC (Continuing Care Retirement Community)
– Cooperative retirement villages or arrangements
– A location where you might only have to move a short distance to find a place where you can get some help in your everyday living (e.g.; an active community that has an assisted living or CCRC in close proximity)
– Proximity to family and friends
– Access to transportation
We think the better you are prepared the higher the chances of a successful retirement. The earlier you start your planning process, the better. Review your plan annually and see how you are doing, then make adjustments. The elements in the retirement plan above are a guideline, your own plan might have more, fewer, or different things to plan for.
For further reading
Baby Boomers Guide to Selecting a Retirement Community (has checklists and other planning tools)
12 Lies We Tell Ourselves About Retirement
5 Warning Signs You Aren’t Psychologically Prepared for Retirement
Comments? What has your retirement planning process been like? Please share your experiences, concerns, successes, and failures with the rest of this community!