Start Planning For Retirement By Taking Inventory
To begin planning for retirement, the first step is to establish where you are today with your finances. This involves calculating your current retirement savings, personal debts, and assets.
Begin by tracking down your funds. Follow these three steps:
1. You’ve probably held many jobs in your lifetime maybe you’ve even had multiple careers. This means that you might have retirement accounts you haven’t thought about in decades. If you think you may have old accounts but don’t remember all of the details, track down your former employers and ask if you have any money sitting in a 401(k), IRA, or other retirement savings account.
2. Track down any defined benefit pensions you could be entitled to. Even if you’re only getting a couple hundred dollars per month out of your pension, that’s money in your pocket that you don’t have to come up with from somewhere else. What’s more, the value of your pension won’t be subject to the whims and vagaries of the market. Inflation will eat some of it, but the rest is there, as predictable as the rising sun. The same goes for your Social Security payments.
3. Finally, put all the important documents related to your various retirement funds in one place. Go over them with your investment managers and estate planner.
Once you’ve compiled your assets (above), now you simply need to calculate your expenses, prioritize, and plan accordingly. Follow these four steps:
1. Once you know what will be coming in, the next step is to list what will be going out. The biggest expense in most budgets is housing. Even if you will own your home outright by the time you retire, local property taxes and general upkeep are still likely to be ongoing costs. Don’t forget to include property taxes as an expense, and budget for between one and four percent of your home’s value annually for repairs and maintenance.
2. Next, start looking into what else you’re going to need to spend in your retirement. Health care is likely to be your second-biggest expense, with the average American needing approximately a quarter million dollars for health-related costs in their retirement. That includes everything from health insurance premiums to prescription drugs and major procedures. If possible, try to get any major procedures completed while you still have employer-provided health insurance.
3. Additionally, don’t forget about any other debts you may have, like student loans for yourself or your children. Try to pay off as much of your outstanding personal debts as possible before you enter retirement.
Finally, start looking at what you want to spend money on when you retire. Do you want to buy a new car? Many Americans find that they want to travel more in retirement than they could while they were working. If so, estimate how much you think those trips will cost. Also, do you want to support anyone other than yourself (kids, grandchildren, a spouse, etc.) during your golden years? Do you want to leave a legacy for your children and grandchildren? These types of expenses fall under the category of wants, but they might be very important wants to you. Rank them in order of importance and estimate your costs.
Taking inventory before you retire will help you to plan accordingly for your needs and wants. As your working years wind down and retirement gets closer, you’ll appreciate the foundation you create today that ensures your retirement will be both on time and secure.