Many of us prepare for retirement by adding money to our 401(k) accounts or IRAs each month. But preparing for retirement actually requires more than just saving for the future – it also involves having a vision and a plan. Here are some tips to get started:
#1 Develop a vision for your retirement.
What will a typical day look like for you after you retire? How will you remain socially active? Will you travel, take up a new hobby, or dig into an existing one that you missed out on when you were working? Develop your vision and write it down.
#2 Understand your fixed and variable spending.
Once you’ve written your vision, determine how much it will cost. Will your mortgage be paid? Do you expect to have car loans? How do you plan to pay off debt before you retire? What do you estimate your insurance premiums (long-term care, health, home, and auto) will be? How about utilities? Those are examples of fixed expenses. Next, consider the potential price tag for any travel, entertainment, gifts, and recreation you’d like to experience. These are your variable expenses.
#3 Determine your net worth.
Your net worth is a benchmark you can use to determine whether you are on track to achieve your retirement goals. The formula for figuring out your net worth is simple: What You Own – What You Owe = Net Worth, but you can also find calculators on the internet.
#4 Access your Social Security information.
Have you earned enough work credits to qualify for Social Security benefits? Keep track of your earnings history and estimates by creating a Social Security account online. That way, you can factor any estimated Social Security benefits into your retirement income.
#5 Prepare a written retirement plan.
Having a retirement plan lets you understand how much you should be saving to achieve the lifestyle you desire, and how you should account for taxes, health insurance, and any other expenses that could unnecessarily erode your nest egg.
Retirement planning can be complex, and I believe working with a financial advisor who places your interests first may help you understand the implications of your decisions and retire more confidently.
