How To Plan For Retirement


The decision to retire is a stressful one. It marks the end of a long chapter in your life and the beginning of a new one. It can be a scary decision to make and most people begin the planning process with trepidation. The big question you have to ask yourself is, “How much money do I need to put away for retirement?”

The answer is, “It depends.” Ask yourself what you want retirement to look like. Here’s what you need to take into consideration when planning for your retirement.

Living Arrangements

The first thing you need to decide is your living arrangements: do you want to continue living in your current home or will you move? If you’re moving, will you downsize to a smaller home or apartment, or do you want to keep the same amount of space to encourage frequent visits from family members? Are you staying in the same geographic area or heading for a warmer climate or a place with a lower cost of living?

If you’re planning on moving, do some research into the cost of living in your desired retirement venue, including the cost of housing. Will you need the same amount of money to live there as what you need in your current situation? If you’re staying in your current home, will it be paid off by the time you retire? How much will that save you? Remember, you’ll still need to pay real estate taxes, homeowners insurance and maintenance costs. The absence of a mortgage doesn’t equal a free place to live.

Free Time

Once you’ve made some decisions about your living arrangements, it’s time to make decisions about your life. What do you want to do with your time in retirement? Having spent most of your adult life working full time, it can be difficult to envision a life that doesn’t require you to spend half your waking hours at a job, so take some time thinking about this.

Do you want to travel? How many trips a year do you see yourself taking and how much do you think you’ll want to spend on each one?

Not much of a traveler? Do you think you’ll get involved in, or increase your involvement in, volunteer work? Volunteering is a low-to-no-cost way to fill your time, meet people and do something meaningful, but not everyone has a desire to spend their time in retirement in service to others after spending their working life in service to an employer, so if you’re not excited about the idea, don’t force yourself. This is your retirement and you should spend it doing things that make you happy.

What kinds of hobbies will you pursue in retirement? Knitting, gardening, reading and woodworking are low-cost hobbies that would not have much of an impact on your budget, whereas golfing, sailing, wine collecting and traveling are going to cause you to dip into your retirement stash. How much money would you like to have available each year to fund these interests?

Current Financial Situation

Will you be carrying any debt into retirement? Car payments, home equity loans, credit card debt?

Consider these questions and sit down and come up with a figure that represents the amount of money you’ll have to have available each month to fund your expenses.  Write that number down.

Have you contributed to an employer-sponsored or other retirement plan?  If so, find out how much you will receive monthly from that plan at your desired retirement age. Write that number down. Assuming you’ve paid into Social Security, now is the time to go to the Social Security Administration’s website and find out how much you’ll receive each month at your desired retirement age. Add that amount to what you can expect from your employer plan or other retirement account.

How are those numbers matching up? Is the expense amount greater or less than the income amount? If the expense amount is greater than the income amount, do you have any savings, CDs or other investments? If you’ve got some savings and will be carrying high interest debt into retirement, it might be wise to liquidate some of the savings to pay off the debt now, while you’re still working. You can take the money you were spending on debt service and put it back into savings to replenish the fund. You’re probably paying a higher interest rate on the debt than what you’re receiving on the savings, so get rid of it.

If the expense figure is still bigger than the income figure, there are a few things you can do:

1. Work longer

Adjust your target retirement date by a year or two, to give yourself more time to pay off debt and pad your savings.

2. Spend Less

Look at your current living expenses. Put together an honest representation of your current spending, and take a good hard look at it to see where you can make some cuts. Be realistic, though. If you know you’ll lose your mind if you have to give up your season tickets to the symphony or your favorite sports team’s games, don’t cut that.  While the idea is to make an earlier retirement possible, you don’t want to make yourself miserable trying to get to that goal.

Look at other things that you could be inadvertently wasting money on. For example, look at your cable TV bill – do you really watch all those channels? Check your cell phone bill, too. Are you getting close to using up all your data every month or do you have plenty leftover? If you’re not using it all up, consider switching to a lower plan.

3. Save more

If you’re able, increase your retirement plan contributions. If that is not possible for you, you can still put more money away. Do you find yourself with a lot of free time?  Consider a part-time job and use that money to fund a new savings or investment account.

Don’t have that kind of time or energy? When’s the last time you took inventory of your garage, attic, basement and other storage areas? Everyone has a handful of items they aren’t using and don’t plan to use, just taking up space. Have a garage sale or sell them online. You might be surprised at how much money you can make just getting rid of stuff that’s cluttering up your house.

The decision to retire is a very personal one and only you can decide what is right for you. Only you know what you are willing to give up in order to reach your goals, and only you can decide what those goals are. Take your time, and give this important decision the attention it deserves, to make sure that once you retire, you can stay retired.

Good luck and happy planning!