Most people think of their retired years as a time to relax and enjoy life. However, too many seniors leave the workforce behind only to find that they don’t have the funds for the lifestyle they want. A worry-free retirement requires careful planning.
The first step is to sit down and estimate how much money you will need. Open a spreadsheet or take out a pencil and paper and follow these simple steps to get started.
Calculate Your Current Expenses
Adding up what you currently spend each month is a good place to begin when planning for your financial future. Include all of your basic living expenses, such as housing, food, utilities, transportation and vehicle expenses. After determining your current expenses, it’s time to think about how those numbers will change when you’re retired.
Subtract Expenses You Will No Longer Have
If you expect to have major debts like your home mortgage and student loans paid off before retiring, subtract those amounts from your living expenses. You can also remove health insurance premiums if you will be eligible for medicare by the time you retire. Consider what other expenses you can get rid of after retirement. For example, you may only need one car instead of two when you’re no longer commuting to work.
Determine Extra Expenses
Now that you have figured out what expenses you can drop after retiring, think about what new expenses you might incur. Most retirees plan to travel and participate in hobbies more often, so factor those costs into your plan. You will also want to allocate some funds for extra healthcare expenses like medicare supplement plans and more frequent doctor visits as you get older.
Factor in Social Security and Pensions
You should now have a rough idea of what your monthly expenses will be. The next step is to think about what sources of income you will have after you retire. Most Americans will get a social security check, and your job may offer a pension plan. Don’t forget to add profits from your 401k plan and other investments.
Account for Inflation
Don’t forget to include the effects of inflation in your plan. The money you store away today will be worth less in ten, twenty or thirty years. It’s smart to save at least part of your money in accounts that grow at the rate of inflation or faster. If the stock market is too risky for you, consider purchasing bonds or opening a high yield savings account.
Budget for Your Final Expenses
No one wants to think about their own death, but it’s important to factor in final expenses. You don’t want to leave your spouse or children with a large debt for your funeral and burial. Consider saving money by purchasing burial plots and planning your funeral in advance. You may also want to set aside funds for your children or other family members to inherit.
Decide When You Plan to Retire
The final step in mapping out your financial plan is to calculate how many years you will need to support yourself after retiring. This can be difficult because no one really knows what his or her life span will be. Err on the side of caution by assuming your retired years will last from your final day of work until your 100th birthday.
Consider Using a Calculator
The steps above can give you a rough estimate of how much money you will need to set aside for your golden years. However, a retirement calculator can give you a more accurate and in-depth assessment. You can find basic calculators for free online or purchase software with more features. If you’re not computer savvy, you may want to invest in a professional financial advisor to help you plan your future.
Financial Advisor Benefits
Many people struggle with finding the right amount of money they will need once they retire. There are many things that you need to consider once you retire and hiring a financial advisor can help you take care of all matters. Hiring a financial advisor has many benefits besides just helping you to retire.
Investing With a Financial Advisor
A major benefit of using a financial advisor is that not only will they help you manage your money, they will also help grow your assets. By using a financial advisor, they will present investment opportunities to you that can earn you extra money in your golden years. Having a financial advisor can also make your life easy because managing money can be a hard task. As a senior, you want to have to worry about as little as possible, and hiring a financial advisor can take some weight off your shoulders.
The 80% Rule
When you retire, there is a rule known as the 80% rule, this rule means that you if you want to have a comfortable retirement, that you need to have your retirement salary be 80% of your salary before retirement. In order to achieve this though, you must plan accordingly and talk to your financial advisor in great depth.
Talk to Your Family
Before you retire, you should talk to your family about the amount you will need in order to fulfill the lifestyle you are accustomed to. This will ensure that the whole retirement process is smooth and everyone involved is happy. Many older couples don’t talk about this and end up not having enough during retirement, don’t fall victim! Talk to your spouse and talk to your financial advisor as well.