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Your Retirement Your Way – A 5 Year Plan

by Elyse Foster, CFP®

Planning for retirement can be a daunting task, most of our attention is focused on daily decisions, obligations, enjoying our family and friends and before we know it we are at the end of our careers and need a plan for the years when we won’t be working, at our first careers at least. With planning, you can rest assured that you will be prepared both financially and psychologically for your retirement – your way.

Financial-

Getting started on your plan takes some organization-

  • Prepare a net worth statement, list your assets, debts, personal assets and insurance cash values.
  • Calculate what you save each year to retirement and personal accounts.
  • Estimate what you spend each year both pre and post-tax then subtract mortgages that will be paid off at retirement and regular retirement savings.  Add an amount for medical costs in retirement.  Plan for 100% of this amount in retirement depending on your travel, housing, and medical needs.
  • Calculate your income replacement factor.  On a rough basis- investment assets x 4% = what amount you can expect to remove each year in income.  Add your social security and pension income (if any).  If you have 100% of your current cash flow congratulations!  If less you have 5 years to bridge the gap.  Increase your savings.
  • Pay off all consumer debt.
  • Plan to fix up your home while you are working, set aside 4% of the value of your home per year for a maintenance budget.
  • Buy a new car before retirement and pay it off.

Investments-

  • Review your risk tolerance and investment strategy.  Are you earning enough on your assets to meet your goals?  Are you diversified as to asset type, liquidity, protection from inflation and growth versus value investments?

Cash Flow-

  • Where will your income come from?  Develop a plan for removing the cash you need for expenses from your investment accounts.  Take pre-tax versus post tax accounts into consideration.
  • Check your social security and pension plans for the amount and date you can begin taking payments and any strategies involved with these plans that might assist with your overall income.

Psychological-

Money is important to be sure but the psychological factor is important too.  Visualize your retirement – what does it mean to you?

  • Will you volunteer, take care of family, work?  Where will you live?  What do your housing and community look like?  Will you travel, more?  Less?
  • What is your family longevity?  Where will your medical funds and services come from?

Discuss your plan with your spouse/significant other and your family, does your plan jibe with theirs? There are often disconnects between family members.

  • Have you created an estate plan?
  • Is your insurance coverage in order?

A friend told me that she is writing down everything she would like to do in retirement. So far she has – learning to play the piano, she said after all she has the piano, hike more, exercise every day, enjoy her garden, travel, and take up bee keeping.  This is a great way to begin to visualize your retirement, it becomes more real and sounds like fun!

Bee keeping anyone?