You probably have questions about your retirement no matter how young or old you are. I know it’s true because people at all stages of life write and ask me to clarify retirement issues all the time. What I find interesting is that while the questions they do ask are almost always good questions they often fail to ask the most important questions about retirement. As a result, I thought I’d put together the top 9 so you can make sure you have all your bases covered. Here we go:
9. Are You Really Going to Retire?
Depending on what kind of work you do and your health, you may have no choice but to trade in your grindstone one day for a gold watch. But even if you can retire, you may not want to. And you may not have to. I have seen scores of people retire and over 60% go back to work doing something for which they get paid – because they want to.
According to the Cornell Retirement and Well-Being Study, 44% of us who officially retire, go back to work for some period of time. 89% of us want to stay active and an amazing 83% of baby boomers say they’ll work after retirement. Almost a third of us say we’ll work as long as our body will allow us to do so.
Sure you might get sick of your profession or particular job. But the odds are you won’t get sick of making a little money and you’ll continue to look for ways to do so even if you have enough money to retire. That being the case, it may not be unreasonable to figure in some side income from work even after you retire.
8. How long will you live?
Granted, this is a tough question to answer with absolute certainty. But in order to plan for retirement, you have to assume you are going to live to be 80 years old at the very least. And I think this number is very low. If you want to be conservative, plan on living to age 90 or 95.
7. How much income are you really going to have? How much are you going to be spending?
It’s relatively easy to answer the first part of this question. And to be fair, most people who come to see me know what their future sources of retirement income are going to be. But not many people really understand what it’s going to cost them to live in retirement.
In fact, I’m sad to share with you that very few people know what it costs them to live today. And until you have a clear picture of your cost of living there is no way you can do any serious kind of financial planning. This is the reason I continually harp on the need to track your spending and to use a software package like YNAB (You Need a Budget) to do so.
6. Do you have the best asset mix for creating enough income?
You might be fretting over not having enough retirement income. In many cases that problem is voluntary. I say that because many people have the wrong investment portfolio and as a result they have substandard income. They don’t really grasp how to squeeze all that tasty income from the portfolio that they really could.
I’ve met scores of people who are sitting on a potential avalanche of income but they don’t realize it. They hold on to non-performing real estate and lack luster stocks for example. Then they lament their lack of income.
While it’s beyond the scope of this post to explain how to maximize income from all your retirement assets, I’ve written about it extensively. If you want a personal look under the hood, this might be a good time to hire a financial advisor for an hour or two to get his or her insights.
5. How much income will you need?
We covered spending in #8 above. Now it’s time to dig a little deeper. Certainly inflation is going to be an issue. Medical, food and travel costs aren’t going down. Neither is inflation. But as you get older, some of your expenses disappear.
Your home might be paid off by the time you quit work. You’ll also hopefully be done paying for your children’s’ college education.
And even though you’ll have more time to hit the road, you may have already done a good bit of traveling. It’s possible that you’ll spend less on travel than you think. Now is the time to really be deliberate about what your future spending is really going to look like. Build on the foundational work you did in question 7 to drill down a solid cost of living number.
4. How much will you be able to help your children?
You love your children. I get it. So do I. But when is enough…enough? Sure it’s harder for our kids than it was for us when we were younger. And if you can afford it, I’m a big fan of giving the youngsters a helping hand. Why not?
But keep in mind that you don’t want to give away so much that you become a burden to your children later on. Always maintain sufficient assets and income to protect yourself first. You must know how much you can afford to help your children and when to say “no”. The only way to do this is to run your own personal financial plan and update it frequently.
3. How will inflation impact you?
As of the writing of this post, inflation is just about non-existent. But that won’t always be the case. In fact, since 1913 the average inflation rate has been 3.43%
At that rate, your cost of living is going to double every twenty years. That means you better have a plan to increase your retirement income significantly or a plan to cut your spending down in half over the next 2 decades.
2. Do you need to make any changes now in order to increase the likelihood of retirement success?
Based on all the question you asked up until now, what changes do you have to make now? Do you have to start tracking your spending? Run a mini-financial plan? Reallocate your investment portfolio? What changes are you going to have to implement? When are you going to start? How?
1. Are you willing to do what is necessary to better secure your retirement?
This is the most important question there is. What I’ve provided you with up until now is knowledge. But knowledge that isn’t applied is just about worthless. Make today the day you do yourself the greatest favor you possibly could. Make today the day you commit to identifying what needs to be changed and create an agenda so you know what you have to do and when you are going to do it. Share our plan with another human being and become accountable to her.
As you can see, the questions I’ve presented above aren’t mysterious. They are common sense considerations. But believe me, people don’t ask themselves these questions – I think because they are afraid of the answers.
Don’t let fear stop you from doing what you know you can do to vastly improve your financial future. You don’t need to hire anyone or buy any books to do most of this. You just need the commitment and willingness to get out of your comfort zone and do what it takes to create the future you want. Are you going to go for it? Starting when? What is your first step?
Carnivals that we participated in this week:
Personal Finance Round-Up – Working Nine to Five.
Great article, Neal. Well done.
The sad truth is that most people will do too little too late. The main excuse for this is that there are more pressing issues at hand – the burning fire that need to be dealt with now. So, taking care for the retirement ‘fire’ will have to wait its turn. Alas, they keep on deferring the actions until it is too late.
In my case, I was almost always the youngest in most of the activities that I took part in. The youngest this and the youngest that. And yet today, I’m already 50 years old! Had I not saved and invested for it since 20 years ago, my retirement would be most unpleasant, to say the least!
AZIZI, congratulations for being proactive and using your foresight. I agree that most of us (myself included) pay attention to the perpetual burning fire. My only way out is to arrange my day and dedicate a certain time each week to big picture stuff. I actually schedule it because if I don’t – I don’t get it done. Thanks!
Retirement can be tricky, because we are planning so early in our lives as to how we will be living our lives in the far future. It`s always better to have more money and overshoot how you want to live when you retire, rather than be strapped for cash and not even be able to retire.