Is the retirement you desire in focus? In other words, do you have a clear picture of what is needed to achieve your desired retirement? Let us be honest with ourselves, many Americans do not have a retirement plan. They just plan to continue to work until they cannot work anymore. We both know that is not much of a plan.
We can do better than this. I want you to achieve much more than this. Having a plan means knowing your retirement numbers and where you stand. Here are the retirement numbers you need to know in order to bring clarity to your plan and to determine if it is in focus.
Retirement Numbers to Know
- How much will I spend a year in retirement?
- How much of my salary should I be saving for retirement?
- How much return can I expect to get on my savings?
How much you will spend in retirement is the first place to start to see if your retirement plan is in focus. I think if you assume you will spend 100% of what your current income is a good place to start. With this assumption it will allow you to continue to live your current lifestyle without having to skimp. In retirement, especially those early retirement years, some spend more than they spent before retirement. The big factor in this is “free time”. I know when I have more free time I can spend more money. With more leisure time, we might innocently rationalize ways to spend more money. Here are a few examples that I have heard pre-retirees say:
- I want to pick up a new hobby (golf and tennis)
- I need to give myself a retirement gift (an exotic sports car)
- I want to do something I never had the chance to do while working (learn to sail)
- As a reward for my years of hard work, I want to travel more (Visit the major cities in Europe)
I think you get the picture. With more free time you can find ways to spend more money.
Determining how much of your salary you should be saving to keep your desired retirement in focus can be tricky. Is it a fixed amount like 10% of my income or is it more? The first key is to be saving. Once you are saving, you can increase your savings amount each time you get a raise. Before long you will be saving at your needed amount. If you are already saving, you should determine if you can put away even more toward retirement and accelerate your path to financial freedom.
The final step in gaining crystal clear focus on your retirement is determining what returns you can expect on your investments. Be careful here! Many people, especially if they are late to the retirement savings game, want to be ultra aggressive. They think they can make up for lost time. Some of these same people at the first market downturn will get out of the stock market. They will be out of the stock market for long stretches because of fear. We know it is very difficult to time the stock market so they are now caught playing another dangerous game. The other end of this extreme is someone who is ultra conservative.
They only want to invest in CDs and money market funds. They have a fear of losing money, but in the end they are losing purchasing power due to inflation. As you can see, each of these two extremes is a view that makes your retirement picture look fuzzy. The best path is to determine your risk tolerance and create a diversified portfolio to match.
At this point do you know the answers to, “How much will I spend a year in retirement?”, “How much of my salary should I be saving for retirement?” and “How much
return can I expect to get on my savings?” If you know the answer to these three questions, I think your retirement picture should be coming into to focus.
If you need help obtaining your answer to any of the above questions, I suggest you contact a financial professional.
Let me know what you are doing to get your retirement in focus?
Author
Isaac is a Fee-Only (no products sold) Certified Financial Planner® Practitioner. Isaac founded Stalwart Financial Planning with offices in Fayetteville NC and Durham NC. Isaac provides comprehensive planning and investment management services to individuals from all walks of life. Isaac can be reached by phone at 910-867-8464, or by email (iallen@StalwartPlanning.com). Visit him at Stawart Financial Planning www.StalwartPlanning.com.