If you are like most people, you are looking forward to retirement. You might hope to travel or pursue a hobby. In reality, though, many people’s retirements are far from what they dreamed about. To have the enjoyable, financially comfortable retirement you want, you need to start planning as soon as possible. Here’s how.
Think Through Your Goals
The first step is to figure out what you actually want to do in your retirement. Do you plan to work part-time? Are you interested in traveling the world? Do you have your eye on a vacation home, or are you planning to downsize to a condo? Before you can start planning a route to your retirement dreams, you first need to formulate a picture in your mind of the retirement you want.
At this point, don’t worry about the money. Let yourself simply daydream. If you could do anything in the world, what would you choose? Visualize as many details as possible, and then write it all down.
Talk to Your Partner
If you are married or in a long-term relationship, you need to get on the same page regarding retirement as soon as possible. Encourage your partner to perform the daydreaming exercise above, and then sit down together to turn your individual dreams into a unified plan.
Lifestyle: More than likely, you will need to make some compromises, both to incorporate each other’s dreams and to fit your retirement budget. Together, figure out your top 2 or 3 goals. Examples include world travel, moving closer to your grandchildren, or putting assets aside to leave behind for your family. Discuss the amount of money you are comfortable spending pursuing your retirement dreams, especially if donating to charity or leaving money to family is important to you.
Plan Ahead: If you want to take up a new hobby in retirement, consider setting the stage now, while you have an income. Take those sailing lessons, learn to scuba dive, or take foreign language classes. If you want a vacation home in retirement, see if you can purchase it now and rent it out until you are ready to use it. Also remember that retirement can bring on depression, as noted in a recent article by US News and World Report. Talk about your feelings regarding this new stage of life.
Figure Out Timing: Delaying retirement can put more money into your pocket, but research shows that retiring early can actually give you more years of good health to chase your retirement dreams–provided that you have a plan to stay active.retiring earlier may give you more years of good health to chase your retirement dreams. Do you want to retire at the same time? Should one of you work another few years and make additional contributions to a retirement account?
Make Health Care Plans: What if one of you gets sick? Have you set up health care proxies? Do you have long term care insurance? If one of you became very sick, would you want to be cared for at home or in an assisted living facility? Is your estate plan in order?
Budgeting
With a basic plan in place, it is time to start creating a retirement budget. Assign costs to each item on your wish list. Investigate areas where your expenses will likely be higher, such as health insurance, and areas where costs will go down, such as commuting expenses, and see how they balance out. Your numbers may be different, but in general, most people need to replace at least 80 percent of their pre-retirement income to live comfortably in retirement.
Understand Social Security: When and how you take Social Security can affect how much money you get. Make sure you understand your minimum retirement age and the pros and cons of delaying your retirement. Our Social Security Maximization Planning Kit can provide the information and analysis you need.
Understand Retirement Accounts: In general, you can withdraw your original contribution from a Roth IRA without paying taxes or penalties at any time, regardless of your age. However, you may be subject to both income tax and penalties if you withdraw earnings before age 59.5. Other types of retirement accounts may be subject to different penalties and tax liabilities. Be sure you understand exactly what the implications are for any retirement account you have.
Talk to a Financial Advisor: Ultimately, planning for retirement is a highly complex, extremely personalized process. You can do a lot of the initial legwork yourself, but only a qualified financial advisor can help you develop specific strategies to ensure that you have the retirement income you need.
Located in West Hartford, CT, Cowen Tax Advisory Group is a one-stop shop for all of your tax and financial advisory needs. Since 1978, we have assisted thousands of people with their financial decisions, while honoring our core values: transparency, honesty, dedication, respect, and education. If you are ready to get started with a trustworthy tax and financial advisory group, we invite you to call 860-676-1100 to schedule your free initial consultation.
