Setting aside money for retirement is an important part of any individual’s financial plan. But unless you have a clear idea of when you want to retire and how much money you will need to live off in retirement, it is difficult to tell if you are retirement ready. In this article, we look forward to the factors that help you with your retirement income planning
When Do You Plan to Retire?
Selecting a date for retirement, even if you change it at a later time, is important to getting ready for retirement because it helps sharpen your focus on the goal. When you have a date specified it makes it much easier to figure out how much you should be saving on a regular basis to meet your retirement goal.
A certain amount of flexibility is required when setting a retirement date, as factors such as your investment performance or changes to your overall financial circumstances can require this date to be altered.
What Type of Standard of Living Do You Expect in Retirement?
One rule of thumb is that you will need from 70-80% of your pre-retirement income to maintain a similar lifestyle in retirement. Say, if you make $100,000 per year, then you would need financial planning of savings and investments that could produce $70,000 per year for roughly 20 years, or a total of $1.4 million.
However, the actual number varies widely from individual to individual. Retirement income planning involves considering what type of standard of living you would like to pursue.
Do you plan to take many expensive vacations?
Will you downsize your residence to free up funds for retirement?
What will your expected level of expenses be for things such as food and shelter?
Answering the above questions could help you come up with an estimation of how much money you will need in retirement and plan your retirement savings accordingly.
What Strategy Will You Use to Claim Social Security?
A variety of rules govern how and when you can start receiving Social Security payments. You can start taking payments at age 62, but the longer you wait to take them the greater the monthly payment you will receive up to your full retirement age (FRA), which is typically 70 years.
Deciding when to claim benefits can be a complex undertaking, and should involve extensive planning or consultation with a financial advisor who understands the program well.
Life insurance could also be used in retirement income planning. Here's how:
Planning for health-related expenses is an inevitable retirement goal. Apart from paying out death benefits to the beneficiaries, life insurance allows you to plan your future in the midst of a health emergency, instead of leaving it up to family members and depleting your retirement savings.
Have You Taken Inflation into Account?
$1 today is unlikely to buy the same $1 of goods 3 years from now, much less 20 or 30 years from now. Because of this, it is essential to take inflation into account when planning for retirement. When calculating your retirement income needs, adjust your expected requirements in today’s dollars to reflect inflation between today and the point in time when you expect to retire.
3 signs to tell you that you need to retire
Unless you are forced to leave the ‘working’ life behind by an illness, job loss, etc. you’d require planning your retirement well. Look for a few significant signs that would probably tell you that your leisure days are approaching! Here are 3 of them…
You’ve attained the FRA (Full Retirement Age), which theoretically means that you will be able to claim the maximum amount every month that you are entitled to.
You have already accumulated a good amount to fall back upon, because can’t just live on your Social Security benefits!
You’re emotionally caught up; you want to leave work and search for your life’s calling!
What is your retirement focus?
While planning ‘retirement’, individuals often don’t know where to start from. At times, it’s even harder to determine your retirement focus. Is it what would be my average life span or will my kids be able to live on their own terms by the time I retire?
Primarily, retirement focus hovers around 2 things – ‘age’ and ‘dollars’. It’s either how much I need to save or when do I start pulling out my retirement savings! Rarely, well-to-do individuals plan about holidaying and ticking off other wish-list items during their retirement years. Whatever it may be, the sooner you start, the better stands the plan!
Planning for retirement is one of the most important, if not the most important, financial tasks a person will undertake. Answering each of the above questions can help you evaluate your readiness for retirement and identify the steps necessary to get yourself ready if you are not currently on track to meet your retirement savings objectives.
Hope this blog is helpful enough to determine whether you are prepared for your retirement life or not. Still have questions? Contact now to schedule your free planning session with Samuel Rad, the best financial planner in Los Angeles.