Just like marriage or divorce, retirement is a major life-changing event and requires a lot of emotional adjustment on your part. Since you are used to working from dawn till dusk, having nothing to do in retirement can leave you unfocused.
That is why you are advised to develop hobbies or travel more once you are retired so as to keep yourself busy and grab the opportunity of doing all the things you have missed out on in the past. As a retiree, you basically have the rest of your life free to do whatever it is you want (as long as you stay within budget!). It may sound like a dream, but unless you plan your retirement properly, it might turn sour on you which has happened many times before.
You need to answer several questions when you are planning your retirement. When do you plan to retire? What are you more likely to do; go fishing, play golf, or travel? What would be your standard of living and lifestyle after retirement?
It is only when you answer these questions truthfully that you will have a basic idea of how much you need to save for retirement. Apart from these, there are several other factors that can and do affect your financial security. For you to enjoy your retirement, it is paramount that you know what these factors are and how to control them. The top five retirement planning factors that you need to consider while planning are:
- Longevity
As human beings, we do not come with an expiration date or a definite ‘end date’. This problem becomes direr for people without a source of lifetime income (such as pension) because the risk of outlasting your assets, then, becomes very real. This is why, when you are planning for your retirement, you need to take into consideration the fact that you may live longer than you imagined. Instead of living in the fear of running out of money, plan in a way that your assets will last for years beyond your life expectancy. You can also get in touch with a financial adviser and seek his/her help to determine how much you would need to save.
- Inflation
Inflation is defined as “a sustained increase in the general price level of goods and services, over a period of time”. During inflation, the value of a dollar never stays constant. In simple terms, the purchasing power of the dollar decreases, when inflation increases. Inflation can greatly undermine the value of the money that you save for retirement, even at low levels. For example, say in about 25 years when the inflation rate is 2 percent, your $50,000 will only amount to somewhere around $30,477. The only way to combat this problem is to save more money today and decrease your debts and spending. It may seem impossible, but it is a necessary step.
- Debts
Whenever you have any debt obligation, it signifies a drain on your revenue. Therefore, it is essential that you have a plan in place to reduce your debts, when you’re planning for retirement. Do not forget that you keep on paying interest when you are in debt, instead of saving that money for your own benefit. You have more chances to enjoy a successful and fruitful retirement when you have fewer strains on your retirement income.
- Health and Healthcare Costs
Several studies indicate that the majority of healthcare and medical costs that you will incur will be in the last five years of your life. It is critical that you have enough money saved for it or have a Medicare Supplement policy that you can use. You also need to consider the fact that you may require long-term arrangements, such as a nursing home or an assisted living community. There are several long-term care insurance policies and annuities that could help you out in such cases. Be cautious and read the terms of these policies thoroughly and understand them before signing on to them.
- Proper Distribution of Your Assets
With the volatility of the markets, the fear of investing in them is not unfounded. If you have this fear, you may be overly cautious and place all of your income with cash and fixed income tools. However, you need to rethink this strategy because it can affect your financial well-being adversely. You will be unable to take advantage of the inflation hedge benefit and the upside potential, if you do not allocate your assets properly. Though at this point in your life you do want to be more conservative and investing in the market may not be the wisest move.
It is critical to keep in mind these five factors while planning your retirement. Do your homework ahead of time and carefully assess your needs. If you are considering seeking the help of a financial adviser, ensure that you choose someone who is level headed and trustworthy. A well thought out retirement plan will go a long way to turn your retirement expectations into a reality.
