I recently read a good article in the New York Times written by Mark Miller entitled “Making Your Money Last as Long as You Do.” The article inspired me to write about the basics in retirement planning, as he starts with those, but concludes with some options that may not be good for everyone. As a Certified Financial Planner™, I help people analyze their readiness for retirement. I often hear “do I have enough money to retire?” Well, that depends. There are so many factors to consider in retirement planning, such as your sources of income, your investment portfolio, your risk tolerance, your annual spending and often, your willingness to work in retirement. All of these factors are important, but this New York Times article motivated me to write about the very first steps in retirement planning.
As Mark Miller stated, budget your expenses. This really means, how much do you spend now? One way to know this is to review your expenses. This may include reviewing your bank and credit card statements. If you use four credit cards, include a review of all four cards. I have a budget tracker on my website that provides categories of expenses, with guidelines for the percentage of net income spent in each category. Another way to track expenses, is to use an expense tracker app! Consider using the mint.com app. Connect the app with your spending accounts such as credit and debit cards. Mint.com provides a statement of monthly expenses by category. Using mint.com saves the time needed to do the manual calculations!
Further evaluation includes estimating your expenses while retired. Certainly, your first 10-15 years of retirement may include more travel. Once in your 80’s, travel expenses may decrease, but there may be unexpected medical expenses that can impact a budget. Also, your mortgage payments will likely end in early-retirement.
Once you have some idea of expenses in retirement, Mark Miller states “assess your Social Security strategy.” There are various Social Security strategies, but generally delaying the start of your benefits past your Full Retirement Age (67 if born in 1960 or later) will yield an additional 8% each year until age 70. If cash is needed sooner, benefits are available as early as age 62, but there is a reduction of 7% each year, if started prior to Full Retirement Age. One important step is to register at ssa.gov. This registration will insure you receive import information from the Social Security Administration. You can also verify your wage history on ssa.gov. This is important as your wage history determines your retirement benefit.
Mr. Miller goes on to say, “keep your day job.” Working during your “retired” years can benefit your retirement plan, and lower the number of years where you draw down less of your retirement savings. Working longer at your current job may be an option, but working part-time in a different job can be rewarding. Even making $10,000 per year can make a difference. Earning some income during the early retirement years can delay the number of years you use your accumulated savings. Delaying the use of your savings is usually an excellent strategy and can be helpful if you are in good health and expect to live a long time.
Mr. Miller had a few other ideas for generating income in retirement, some of which I may not recommend, but his basics are perfect, especially if you are interested in working with a Certified Financial Planner™ to make sure your plan is a good one. Having a plan is what it’s all about!