Many people think that retirement is something that is like a unicorn. It is a mythical beast that really doesn’t exist. There are also those who think that retirement is like the rising and setting of the sun. Retirement is something that is automatic. Both of these ideas are inaccurate. Retirement can be accomplished but it will take a dedication of time and effort on your part. There are some basic steps that you can take to make this happen.
Take a deep breath and make the first step of determining your goals for retirement and pre-retirement. The ideal retirement age for you personally is one of the things you need to consider. On the other hand, think of the absolute oldest age that would be acceptable for retirement. Another thing to consider is what amount of money would you be okay with committing towards the realization of your retirement dreams? Could you put more aside if your situation changed? Also look long and hard at what you would be willing to change to put more aside for your retirement fund.
How long will you be retired? This is an important question. Life expectancy comes into play. Then you need to look at your individual family. Do people in your family live longer or shorter than most. It is better to plan to live longer and have plenty of funds than not have enough. This is an area that you can adjust. You may have to consider working more years rather than less.
You will need to calculate your net worth. This is done by subtracting your liabilities from your assets. After retirement you will have another liability that raise its head. This is Estate taxes. If you have success in your retirement planning then you will be affected by estate taxes. For a single person that does not plan on getting married this is very simple. List all of your assets as well as making a separate list of liabilities. Once you have subtracted the liabilities from the assets what you have left is net worth. In the event that you are married then ownership comes into the picture. A married person should follow the same steps as a single person but also include the step of inventorying ownership. You should get the help of an estate tax professional or an attorney. This will help to get started setting up your estate plan.
Look at your current expenses as a basis to determine your retirement expenses. What expenses will go away or be reduced? Professional dues, dry cleaning or an automobile note may be some examples of things that will go away or be reduced. There are also expenses that could actually go up. Things like health insurance, long term care expense, travel and vacations and other hobbies or entertainment activities. Many people don’t think about what they will do with all of their free time.
Put a pencil to how much income will be available to you at retirement. Will you continue to work possibly part time or will your income come from investments alone? Do you have a plan in case your income source goes away or you have to take a cut? It may be easier to add additional income than to actually cut back expenses.
How inflation affects your bottom line should be considered carefully when doing retirement planning. This a often overlooked factor. A retirement plan is easily ruined by the effects of inflation. There is something called the Rule of 72. This rule is used in calculating how long you have before inflation cuts your buying power in half. To calculate this use the number 72 and divide it by the rate of inflation used in your calculations. The actual number of years that your buying power will be cut in half is your answer. Here is an example, if you need $ 6,000 a month to live and the rate of inflation is 3% then in 24 years you will need $ 12,000 to get the same goods and services.
Review your plan and be prepared to adjust on a regular basis. This is important and should be done annually. Take advantage of increases in income to increase retirement contributions or reduce debt. Look at changes in lifestyle that may change your retirement income or expense needs. Don’t be afraid to adjust.
Start as early as possible. A common mistake is to wait until things are perfect. The truth is that things will never be perfect. It is better to start with a small contribution and build than to not start at all. You will find that the act of starting will increase your confidence and help your reach your goals sooner. Time is really your greatest asset.
It is never too soon to start. Waiting until the situation is ideal is a common pitfall. Honestly, things will never be ideal. Go ahead and start with a small contribution and build on that as you go. Just starting will help you achieve you goals sooner and is a huge confidence booster. Your greatest asset is time. These are just a few primary ideas to get you on your way. Educating yourself is worth the time. An objective set of eyes is invaluable so find a professional that you are comfortable with and you trust.
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