One of the most important things you can do is get a rough sense of your retirement budget. Figure out your monthly expenses first. Some people factor in their rent or mortgage payment, car payment, food costs, medical costs, and other necessary monthly bills but forget about extra expenditures like entertainment. It’s important to factor in anything so you have a clearer picture of what to expect.
Next, determine how much income you expect to have during retirement. Make sure you include all sources of income. Start with Social Security. If you visit their website at SSA.gov and sign up for an account, you can access your earnings record and get a rough idea of how much you’ll receive at retirement age or at age 70 if you’re willing to work a little longer. Don’t forget to include your spouse’s benefits, too.
You may have other income as well. For example, will you receive a pension from your employer? Will you be receiving money from rental property? Distributions from an inheritance?
Add all of your future income together and subtract your future expenses. The result is how much of your retirement you’ll have to fund with your retirement savings every month. Figure out how much total retirement savings you’ll need to amass if you only take out 3% every year. If you find that the amount is unattainable, you may have to make some decisions about your spending habits both now and in the future. Some ways to decrease your expenses might be to move into a smaller house or getting a more economical vehicle.
Remember, this process isn’t an exact science, but it does give you a much better idea of what you’ll face financially in the future.
Be Open to the Idea of Working Longer
Working for a few years past retirement age can have a big effect on your retirement savings. There are a few reasons for this. First, it gives you a few more years to contribute to an employer-sponsored retirement plan. Next, it lets your nest egg grow for a few more years since you won’t have to dip into it as early. Finally, it can significantly increase your monthly Social Security benefits.
Think about Retirement More Often
A lot of people freak out about retirement because the fear of being financially unprepared can be scary and overwhelming. Taking the time to really think about and plan the fun side of retirement is an important part of having the right attitude toward it both now and in the future.
What big dreams do you have? Are you planning to focus on travel? Do you want to move so you’re closer to your children or do you crave a warmer climate?
Think about how you’ll spend your day to day free time, too. Will you join a gym? Volunteer for a charity?
The clearer the picture you have of retirement, the more focused you’ll be when you get to retire. Being prepared mentally can help prevent panic and over-indulgent spending.
Consider the Middle Ground
A lot of people assume that retirement is black and white. One day you’re working full time and the next day you never have to work again. The truth is there are a lot of gray areas when it comes to retirement.
Some people can’t tolerate the thought of putting in 40 hours a week any longer but find professional success after retirement age as a part-time teacher or instructor. Others find enjoyment working part-time retail jobs that get them out and interacting with people in their neighborhood.
Consider the middle ground for your spending, too. For example, there’s a lot of gray area between buying your dream car and relying on public transportation. Rather than spending too much money on a car you don’t really need, why not get something sensible and affordable?
Work with a Financial Planner
Retirement is scary for most people and it’s smart to hire a professional to help you when you’re feeling a bit over your head. Financially, retirement is one of the biggest changed you’ll experience in your lifetime and there’s nothing wrong with asking an expert to help. It’s worth the investment but only if you really listen to what they have to say.
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