Our sixth blog for the Financial Planter blog series, written by Megan Poore a Financial Advisor in Austin, Texas, focuses on preparing for retirement.
Once we get to a certain stage in life, we start thinking about preparing for retirement. Perhaps you have read a few articles on the subject, or even sought out a retirement calculator which will tell you how much money you should be saving or investing each month in order to reach a certain level of retirement income. While it is vitally important to have this information, it has been my experience as a financial advisor for more than a decade, that some other very important steps in the process are regularly being overlooked. Here are a couple of questions to get you pointed in the right direction.
How has "retirement" changed?
According to the US Census, life expectancy has increased by about 8 years from the 1970’s to 2010. This means that someone who retired at age 65 in 1970 could statistically plan to live about another five years. Someone retiring now at age 65 is expected to live into their late 70’s, possibly much later, which more than doubles their length of retirement If you envision retirement as rocking on your porch and drinking sweet tea for a few years, then it might be time to realign your thinking here! Being retired for 15 years or more affords some incredibly exciting opportunities, though you are still welcome to spend as much time as you would like in that rocking chair.
What will you be doing? With whom will you be doing it? What will it cost?
When I ask clients who are in their 40's and 50's how they envision spending their retirement years, many times I am met with blank stares. The fact is, it is impossible to plan for the financial part of retirement if you have not taken time to think and discuss how you would like to spend your time. It isn't always easy to think ahead to what life might be when you are in your 70's, so consider talking to someone in that age range or talking to a financial advisor who has clients representing multiple generations.
Travel is a pretty consistent desire in retirement, but that can be accomplished so many different ways, from living in an RV for several weeks of the year to first-class travel abroad. The more specific your vision, the more realistic your plans can be. If you are married, talking to your spouse about this is vitally important. Many of us can relate to that old TV show, Green Acres. She wanted to live in the city and he envisioned life in the country. Your circumstances may not mirror those exactly, but it is common for spouses to have separate expectations. The sooner you start discussing them, the better.
I can downsize, so I should be able to live on less, right?
Often, couples who have children who are still in school will say that their plan is to sell their current house and buy a much smaller house with the proceeds, freeing up additional assets that can be used for retirement funding. What they are having a hard time imagining is that their children will become adults, possibly getting married and having children sometime in the not-so-distant future! Once grandbabies are a possibility, then moving into a smaller house that will not easily accommodate the entire family for the holidays, for example, may not be so enticing. Or, that smaller house might be more enticing - no judgment here! Either way, the old stand-by rules of living on 70-80% in retirement of what you lived on during your working years does not always prove true these days, so allow for some flexibility in your planning.
As exciting as the idea of not setting an alarm clock Monday morning may be, retirement is also one of life's biggest transitions. Even wonderful transitions can be unsettling - think back to uncertainty you may have faced while moving out of your childhood home, getting married or having your first baby. The more questions you can ask yourself ahead of time, the less uncertainty you will be faced with when your big day comes.