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July 2005 |
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 In the money game, nothing is bigger, scarier and easier to put off than funding a secure retirement. Here at Debt Matters we are trying to keep you from making one of the biggest and most frequent mistakes: Procrastinating on retirement planning. Here are five key questions to ask yourself to help you realize your retirement. And here's a tip: Have fun with it. Retirement shouldn't be a dark cloud on the horizon. It should be whatever your imagination dreams up and your health allows. Planning early not only makes a secure retirement more likely, but it takes the fear out of the process. This month, we challenge you to answer the following: When do I want to retire? Be realistic here. If you haven't saved a dime and you're 30 years old, you're probably not going to retire at 35 or 45. Also, don't count on working forever. That might be your plan, and that's fine. But, your health might not allow it and you might change your mind anyway. That said, it's okay to plan to work past 65. Again, just be realistic. How do I want to retire? Almost assuredly, you will spend less when you retire than you do in your working life. For instance, if you buy a home and pay it off, you won't have a mortgage to pay. And you probably won't be driving 40 miles a day on your car, which will save money. Perhaps you can downsize your house to an apartment? Do you want to work at all when you retire? (Many people continue working in a limited capacity because they enjoy it.) Do you want a second home or a cottage to get away to? Do you want to travel? These are the kinds of questions you need to ask ahead of time. Paint a detailed picture of your retirement. That picture can always be changed later, but you need a place to start. How much will it cost? Take a clear picture in your mind and put a price tag on it. Build a budget for your retirement as if you were retiring today. Include food, property taxes, housing/car maintenance, travel, healthcare etc. How much income will it take each month? How much will it take each year? Once you figure that out, you need to adjust for inflation. Free retirement calculators are scattered across the Internet. They usually ask for or include an average annual inflation rate. You should be able to come up with a total amount that you need to have on day 1 of retirement. Where will the money come from? Make this one easy on yourself. The answer is YOUR savings. Don't count on an inheritance or Social Security. Inheritances require that other people manage their money smartly. Social Security was meant to be a safety net, not a retirement plan. Pretend that safety net won't be there. Do you have a pension? Do you have a 401k available to you? Will you open an IRA? (See May's Debt Matters about IRAs). These are where retirement plans begin. How much do you need to save each year? The answer may be different for different years. If you are paying for college for yourself or a child, you might not be able to save much this year. Or maybe you just have a lot of debt to pay off first. But in a couple years you might plan to triple your retirement savings. Plan how much you're going to save each year and attach a conservative interest rate to it depending on the investment vehicles you choose. Again, you'll need a retirement calculator. If you earnestly answer all these questions, you'll have mapped out your retirement. And that usually means the difference between getting where you want to go and being lost in the woods. |
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