The ideal retirement looks a bit different for everyone. For some, retirement means quitting work and spending more time with family, traveling the world, or pursuing hobbies. For others, it may just mean a slower-paced version of what they are already doing – working, volunteering, and enjoying their favorite activities. But no matter what you want your retirement to look like, you need to plan ahead to make it work.
An important part of ensuring that you can retire comfortably is taking an inventory of your expected expenses in retirement so that you can make sure your investment strategy will account for these costs. Below, we’ll guide you through the three main considerations you’ll need to make when planning for retirement on your own terms.
1. Basic Income Needs (Paycheck)
Basic income needs are what most people think about when they think about saving and investing for retirement. This is what your regular paycheck typically covers – things like housing, health and wellness, and basic necessities like food, clothing, and utilities. It’s important to not only consider what you are currently spending on these basic needs, but also what your future needs may be based on life expectancy and general health.
The truth is that modern science has improved healthcare and thus boosted our quality of life. That means that people are living longer than they used to. In fact, according to the Social Security Administration, about one out of every four 65-year-olds alive today will live past the age of 90, and one out of 10 will live past age 95. Though you can’t know for sure how long you will live and need to sustain yourself financially, it’s important to plan for a longer life in retirement.
Living longer in your retirement years means that you not only have to plan to pay for your basic necessities for longer, but you’ll also want to think about increasing healthcare costs. While we all hope to be healthy in our golden years, the truth is that the older we get, the more healthcare costs we will most likely incur. So it’s important to make sure that you are setting aside extra funds for possible healthcare needs like home health care.
2. Pursuing Wants & Extras (Playcheck)
Retirement is the ideal time to pursue the things that you enjoy most. For many individuals, the perfect retirement includes things like taking vacations, spending more time on hobbies and interests, and helping your family out financially. Whether you want to travel abroad for a lavish vacation or just to the next state over to visit family, it’s important that you include these plans into your retirement strategy to ensure that you have enough funds to spend your time how you see fit. If you plan to act as a “family bank” for your children and grandchildren, loaning or gifting money, then this will also be something you’ll need to include in your retirement plans.
When thinking about how pursuing wants and extras in retirement, you’ll also want to be conscious of when you plan to stop working. Many individuals approaching retirement continue to work into their retirement years. According to a recent study by Merrill Lynch and Age Wave, more than two-thirds of those over the age of 50 who are almost ready to retire plan to work part time or cycle between periods of working and taking leisure time. Of those surveyed, one in 20 plan to continue working a full-time job while just over one-fourth never want to work again.
Your work plans will certainly impact your financial needs in retirement and how much time and money you will have to pursue leisure activities. It will also impact how much extra money you will have to give to your children and grandchildren as loans or gifts. That’s why it’s vital to consider if you want to work in retirement and when you plan to stop working altogether.
3. Legacy – What You’re Leaving Behind
American philosopher, William James once said, “The great use of life is to spend it for something that will outlast it.” And this speaks to what many individuals that we work with want to include in their retirement planning – a legacy, or what they can leave behind for others after they have passed.
Many retirees want to be able to leave their assets and wealth to their loved ones when they are gone. By planning ahead, these individuals are able to ensure that they have their basic needs and wants met in retirement while still having additional funds to leave to family after they pass. These funds may go toward helping their children retire more comfortably or ensuring that their grandchildren can attend college or purchase their first home
In addition to leaving behind a family legacy, many retirees also want to give money to their favorite causes or organizations that are important to them. This is a way that individuals can continue to make an impact on the causes they care about most even after they are gone. By identifying what you would like to leave behind to your favorite charities or non-profit organizations, you can include this into your retirement plan.
Are you ready to make sure your retirement is on your terms? Call CM&A for a 30-minute call with Joe to discuss what it takes to make that happen: (262) 790-9966.