Reality bites thinking about retirement! Hitting 50 is like reaching the top of the rollercoaster, and boy, did I have questions at this altitude! I wasn’t just wondering if I’ve stocked enough gold for my own future; I was also co-starring in my parents’ blockbuster, “The Golden Years,” and the executive producer for my kids’ film, “The Post-College Chronicles.”
Many of us get exasperated, looking at children who have proudly graduated from the University of Expensive Education and are card-carrying members of the Gainfully Employed Club, but their wallets resemble leaky buckets. The economy has not been kind to this generation.
Retirement is a big change in life. It’s a crucial time to check your financial health and get ready for the future. As retirement approaches, there are important decisions to make, and you should take charge to secure your financial well-being in your later years.
Financial fitness is just like setting up yourself on a physical fitness journey. Read about that here. The steps are very similar. Set your goals, and make a plan. In this blog post, we’ll discuss the important choices you should think about and the necessary financial evaluation to get ready for a comfortable retirement.
The smartest move you can make right now is to take a big breath, look at where you are, and figure out where you want to go. Then, jot down the steps you need to get there. One quote that always gets me in the feels is this one. I love Charlie Macksey, and his work is always encouraging.
“I can’t see a way through said the boy. Can you see your next step?
Yes.
Just take that said the horse.”
The Boy, the Mole, the Fox and the Horse by Charlie Mackesy.
It might seem like a lot, but if you tackle it one step at a time, you’ll be surprised at where you’ll be in a year and even more amazed at your progress in ten years. Don’t ignore the situation; grab a pen and start making things happen. Getting your mindset right is crucial. You can read about ways to think about money here.
Key Decisions for Retirement Planning
Decision 1: Retirement Lifestyle and Expenses
Your retirement lifestyle plays a significant role in your financial planning. Consider what kind of life you want to lead during retirement and estimate your monthly expenses, including housing, healthcare, and leisure activities. As you dive into the nitty-gritty of retirement planning, remember that the financial aspects are just one part of the equation. Think about the non-financial elements as well. Consider how you want to spend your time in retirement, whether it’s travelling, pursuing hobbies, or engaging in community activities.
It is important to involve your partner in this planning if you have one. Jointly discussing your retirement dreams and financial expectations ensures that both your needs and wishes are considered. Combining your hopes and dreams can lead to a more harmonious retirement strategy.
You should also think about the financial support you might have to give your parents if that becomes necessary, especially if they don’t have sufficient resources of their own. It’s highly probable that your kids will need financial support from you, the Bank of Mom and Dad (BofMAD), to kickstart their own lives.
Questions to ask yourself:
- What is your vision for your retirement lifestyle?
- Do you have people to support even into your own retirement?
- Have you calculated your expected monthly expenses in retirement?
- Are you accounting for healthcare costs, which may increase with age?
Decision 2: Retirement Age and Timing
One key question is when you want to retire. Are you eager to embrace early retirement, enjoying the freedom to explore new passions and experiences? Or do you envision a more gradual transition, working part-time during your retirement years? The answer to this question sets the stage for all your retirement planning.
Your desired retirement age has implications for your financial preparedness. If you aim for an early retirement, you’ll need to accumulate more savings to ensure you can maintain your desired lifestyle without a regular paycheck. On the other hand, if you plan to work part-time in retirement, you might rely on a combination of income sources, including part-time work and retirement savings.
In some countries, retirement is mandatory at a certain age, but that doesn’t mean you have to stop working. Many people have found different ways to continue earning an income. Personal circumstances also play a role in this decision. Some people may also find they want or need to work longer than initially anticipated to maintain financial stability or to fulfil their sense of purpose.
Questions to ask yourself:
- What age do you envision retiring?
- How will your retirement age affect your financial readiness?
- Have you considered the trade-offs between early retirement and working longer?
- Have you considered a secondary career, earning beyond retirement? What skills may you need to learn or relearn in that case?
Decision 3: Retirement Income Sources
Understanding where your retirement income will come from is crucial. Identify your potential income sources, such as pensions, retirement accounts and investments. Retirement accounts have different names and rules, so please check what is relevant for your country. ( eg 401K, IRA, ISA, SIPP etc). Diversifying your income streams can provide financial stability.
Take care when making investment decisions, and when in doubt, don’t hesitate to seek guidance from a financial professional. Asking for help is perfectly okay. Moreover, consider broadening your understanding by diving into extensive reading on the subject (you can follow this blog for insights and recommendations). Keep in mind I’m not a financial advisor, and the advice I give stems from my own experiences, which might not perfectly match your specific circumstances.
Questions to ask yourself:
- What sources of income will you have in retirement?
- How can you maximize your retirement account savings?
- Have you considered diversifying your investments for financial security?
Decision 4: Debt Management
Before retiring, it’s a good idea to check out any debts you still have, like mortgages, credit card balances, or loans. If you can work on paying them off or reducing them, it’ll give you more money to enjoy your retirement the way you want to.
This proactive approach allows you to redirect those monthly debt payments towards fulfilling your retirement dreams, whether that involves travelling, pursuing hobbies, or simply relaxing. So, make a plan to manage your debt before retirement to make sure you have a financially comfortable and enjoyable retirement.
Questions to ask yourself:
- What outstanding debts do you currently have?
- How do you plan to manage or pay off these debts before retiring?
- Can you explore options like downsizing or refinancing to reduce debt?
Analyse your Finances for Retirement Readiness
Take A Snapshot of Your Current Finances
The questions mentioned earlier are valuable tools for gaining clarity on your financial goals and aspirations. Conducting an assessment of your current financial situation serves as a reality check and a foundation for achieving financial success. Calculate your net worth by subtracting your liabilities (what you owe) from your assets (what you own).
To begin, consider your assets. These encompass all your possessions with monetary value, including savings accounts, investments, real estate, vehicles, and any other valuable items. Take a comprehensive inventory of these assets, ensuring that you don’t overlook anything that could contribute to your net worth.
On the other side of the equation, you’ll need to identify your liabilities. These are your financial obligations, such as mortgages, loans, credit card balances, and any other debts you owe. Total up all your liabilities to get a clear picture of your financial responsibilities.
Once you’ve gathered these figures, subtract your total liabilities from your total assets. The result is your net worth. This number represents the difference between what you own and what you owe, providing a snapshot of your financial health.
By taking stock of your savings, investments, and other assets you’ve accumulated over the years, you gain insight into the strengths and weaknesses of your financial situation. This knowledge is invaluable as you plan for the future, helping you make informed decisions about your financial goals, retirement, and investments.
And don’t worry if your net worth isn’t as high as you’d like it to be or if it’s negative. What’s fantastic about this process is that it empowers you to take control and make positive changes to improve your financial situation.
Questions to ask yourself:
- What is your current net worth?
- How much have you saved specifically for retirement?
- What is your current monthly income and expenses?
What is your comfortable risk appetite?
Take a moment to assess your comfort level with investment risks. As you get closer to retirement, it’s important to adapt your investment portfolio to reduce risks and safeguard your savings. This might be the right time to consult a financial advisor, especially if you’re uncertain about your needs.
As you get closer to retirement, it’s wise to rethink your investment portfolio. Typically, in the earlier stages of your career, you might have been aggressive and been more open to higher-risk, higher-reward investments. However, as retirement nears, your priorities often shift. Preserving your hard-earned savings becomes a top concern.
To achieve this, it’s crucial to adapt your investment strategy to reduce risks. This might involve reallocating your investments to more stable and conservative options. Bonds, for example, tend to be less volatile than stocks and can offer a more predictable income stream, which can be beneficial in retirement.
Even if you haven’t thought of investing before, now is a good time to think about putting some money into investments. This can help your money grow and create income for you in the long run.
Questions to ask yourself:
- What is your risk tolerance for investment?
- How can you adjust your investment strategy to align with your retirement goals?
Conclusion
Getting ready for retirement is a big task and also an ongoing one. It is never too early or too late to think about it. It’s crucial to make well-informed choices and thoroughly review your finances for a secure future. By addressing the important decisions and financial assessments discussed in this blog post, you can move closer to realising the retirement you’ve envisioned. The important thing is taking that first step. Keep in mind that seeking advice from a financial advisor or retirement planner can offer personalised guidance based on your individual situation, optimising your retirement experience.
