Living a comfortably in retirement is the dream of virtually all working Americans. In today's challenging economic environment, it is critical that people have a clear understanding of their desired retirement lifestyle. Based upon their retirement vision, retirees are then able to undertake the financial analysis necessary to ensure that their finances are adequate to support them throughout retirement. Here is a simple framework for thinking about the key issues retirees face:
Create Your Own Personal Retirement Vision
Everyone's vision of retirement nirvana is different, and thus there are numerous lifestyle decisions that retirees must address. Perhaps the most fundamental decision to be made is geographic location. Do we stay in our current location or relocate to another area? Some people dream of extensive traveling to exotic locales, while other folks are content to decompress from the working world and spend more time at home with friends and family. Retirees may use the freedom of retirement to focus more on existing hobbies, or possibly develop new ones. The personal enrichment found in volunteering is also a focus area for many retirees who previously never had the time to fully devote to helping others. Another retirement concern is the feeling of isolation that can occur after exiting the workforce. Social media and internet technology can be useful in helping people stay connected with friends and co workers after retirement.
Forecast Retirement Expenses
If the retiree has a clear vision of their retirement lifestyle, then analyzing future expenses is the next logical task. A spreadsheet outlining current expeditures by budget category should be constructed and compared against estimated spending in retirement. The good news is many items may show a lower monthly cost in retirement, including reductions in commuting expense, work lunches, and dry cleaning/work clothing. With the extra time available, retirees often find they are able to become more savvy shoppers, taking advantage of couponing, senior discounts, and coordinating errand trips to reduce transportation expenses. A significant percentage of retirees also choose to downsize their housing footprint, which can offer relief to the household budget in terms of mortgage expense and operational maintenance costs. Retirees need to be aware of budget items that may increase in retirement. Health care in particular can be an issue if the retiree is losing employer coverage and doesn't qualify yet for Medicare. Those who plan to travel extensively or take up new expensive hobbies, will need to adjust their budgets accordingly.
Retirement Income Analysis
Now that expenses in retirement have been carefully analyzed, the income side of the ledger needs to be scrutinized to ensure sufficient funds are available to live the desired lifestyle. The good news is most financial advisors estimate retirees can live on 70-75% of the pre retirement income. Social Security is an important piece of the puzzle but was only designed to be a supplement to the individual's savings. Clearly, the retiree will have to rely primarily on a combination of their personal savings, Individual Retirement Accounts (IRA's), and any defined benefit plan (pension) they may receive from their employer. Even though work is a four letter word, many retirees plan to work part time to supplement their incomes.
These simple steps of visualizing their ideal retirement, and analyzing the costs and income levels necessary to support their lifestyle, will give retirees the tools to successfully transition to the next phase of their lives.
Create Your Own Personal Retirement Vision
Everyone's vision of retirement nirvana is different, and thus there are numerous lifestyle decisions that retirees must address. Perhaps the most fundamental decision to be made is geographic location. Do we stay in our current location or relocate to another area? Some people dream of extensive traveling to exotic locales, while other folks are content to decompress from the working world and spend more time at home with friends and family. Retirees may use the freedom of retirement to focus more on existing hobbies, or possibly develop new ones. The personal enrichment found in volunteering is also a focus area for many retirees who previously never had the time to fully devote to helping others. Another retirement concern is the feeling of isolation that can occur after exiting the workforce. Social media and internet technology can be useful in helping people stay connected with friends and co workers after retirement.
Forecast Retirement Expenses
If the retiree has a clear vision of their retirement lifestyle, then analyzing future expenses is the next logical task. A spreadsheet outlining current expeditures by budget category should be constructed and compared against estimated spending in retirement. The good news is many items may show a lower monthly cost in retirement, including reductions in commuting expense, work lunches, and dry cleaning/work clothing. With the extra time available, retirees often find they are able to become more savvy shoppers, taking advantage of couponing, senior discounts, and coordinating errand trips to reduce transportation expenses. A significant percentage of retirees also choose to downsize their housing footprint, which can offer relief to the household budget in terms of mortgage expense and operational maintenance costs. Retirees need to be aware of budget items that may increase in retirement. Health care in particular can be an issue if the retiree is losing employer coverage and doesn't qualify yet for Medicare. Those who plan to travel extensively or take up new expensive hobbies, will need to adjust their budgets accordingly.
Retirement Income Analysis
Now that expenses in retirement have been carefully analyzed, the income side of the ledger needs to be scrutinized to ensure sufficient funds are available to live the desired lifestyle. The good news is most financial advisors estimate retirees can live on 70-75% of the pre retirement income. Social Security is an important piece of the puzzle but was only designed to be a supplement to the individual's savings. Clearly, the retiree will have to rely primarily on a combination of their personal savings, Individual Retirement Accounts (IRA's), and any defined benefit plan (pension) they may receive from their employer. Even though work is a four letter word, many retirees plan to work part time to supplement their incomes.
These simple steps of visualizing their ideal retirement, and analyzing the costs and income levels necessary to support their lifestyle, will give retirees the tools to successfully transition to the next phase of their lives.
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