Getting Financially Ready for Retirement
By Kristi Vaughan
Are you financially on track for retirement? Possibly. But if you are like most Americans, you probably have a bit more planning to do. So let’s get started.
Take a snapshot
Before you can plan for the future you have to know where you are now. So get out those 401(k) statements, grab the paperwork the Social Security Administration sent you before your last birthday and pull out your calculator!
The first place to start with retirement financial planning is to identify assets you already have allocated to retirement. Most commonly these include:
- Individual Retirement Accounts
- Employer-funded pensions
- 401 (k)s
- Annuities
- Military or government pensions
- Social Security benefits
But don’t stop there. Your non-retirement assets and liabilities also can play a large role in your retirement planning. So take a look at your overall net worth including value of real estate owned, non-retirement savings and investments, life insurance cash value and debts owed including mortgage and credit cards.
Determine your need
How much will you need for retirement? As with earnings during your working days, this is a subjective figure, dependant in large part on your age, your health, where you live and the lifestyle you lead.
One rule of thumb, and that cited by the Social Security Administration on its retirement planning site, is to assume you will need at least 70 percent of your pre-retirement earnings to maintain the same lifestyle.
To get a more accurate picture of future spending you’ll want to consider such factors as:
- Expected life span
- Costs that may go down, such as commuting expenses,
business lunches and college tuition - Costs that might increase such as medical or travel and leisure costs
- Whether you will work part-time
- Your spouse/partner’s retirement plans and potential income
- Whether you will move to a lower, or higher, cost area
- Potential for funding grandchildren’s school expenses
Find the shortfall
Now that you know what you have and what you’ll need, you’re ready to crunch some numbers! These results will tell you how much more you need to save, and at what rate of return, to meet your goals. Fortunately, since few of us like doing this totally on our own, there are some helpful calculators that can be found on several Web sites. Some good places to start are:
The nonprofit American Savings Education Council has a Ballpark Estimate Pre-retirement Planning Worksheet that can be completed online or printed out.
Another calculator can be found through AARP the nonprofit membership group for people over 50.
Most of the major banks, mutual fund companies and brokerage houses also have retirement calculators on their Web sites.
