How to Retire Properly

Are you like so many in the US and want to retire but are not certain of when will be the right time? If that is you then maybe I can help you some. Retirement is not some scary part of your life but rather a time that you should be enjoying. But not everyone’s retirement plans are the same, and not everyone’s retirement needs will be the same. So the key is to start planning as soon as possible for you and your family’s transition into a peaceful retirement. As with so many things in life the key is preparation and to start early as we will be looking at here in a minute. So in the following paragraphs, we will examine how anyone can assess their retirement situation and make the best decision they can for their unique needs.

First, you will need to assess your savings. By this I mean examine how much you are saving for retirement to determine if you need to be saving more. I can almost guarantee you that very few people will do this exercise and determine that they are saving too much. But hey, if you are then good for you. But for the rest of us, we need to be saving about 15% of our salary on an annual basis from age 25 to retirement to have about ten times our annual salary saved. And that amount will allow you to replace only about 40-45% of your salary. If you are wanting to have the same standard of living in retirement, it has been estimated that you will need to save about 25% of your salary from age 25 until retirement.

But life is anything but perfect as we all know. I know very few people who are saving 10% of their salary let alone 15% to 25% of it. Why are you asking? Well, things like college expenses, children, and mortgages all come into most of our lives in our mid-20’s to mid-30’s. And those parts of our lives take away from our saving as much. So my advice to you is to save as much as you can while you are young which will allow those funds to work longer and harder for you to make you are much as they can.

Now, everyone who has a 401(k) plan at work can save up to $18,000 annually. That is a lot of money that can be socked away for your retirement. And for those age 50 or older you are allowed an extra $6,000 annually meaning you can put away up to $24,000. And now you are thinking how anyone can put that much money away on an annual basis? Well the answer is by the time you are in your 50’s most of us will have already had our kids and hopefully, they are adults by now. If they are in their college years, have them pay for it and not you if you did not plan early and save for the expense of their higher education. They can finance their degree, and you can help but not at the expense of your retirement. Also, most people in their 50’s should have the house mainly paid for unless they have refinanced or moved. But try to keep a mortgage at a minimum in your later years. So you see, your larger expenses should not be there by the time you can put away your maximum allowed including the catch-up provisions. And the same goes for Individual Retirement Accounts where you are allowed to save $5,500 up to age 50 and $6,500 annual after age 50. These two tools used together are a powerful way to ensure you can retire in style.

Now that saving is out of the way it is essential that you know how you are spending your hard earned money. It does not matter what you do if you do not know where your money is going. In retirement, there are certain expenses that you will not have to worry about like Social Security taxes and commuting costs. But living expenses such as insurance, food, and housing will always be there. Take some time to see where it is you are spending your money. If you do not budget now, it is a perfect time to start. I tell all my clients to prepare a budget of some sort and figure out where your money goes from each paycheck. Then you will be able to tackle debts or increase savings. But if you are clueless as to where it all goes, you will be behind the eight ball so to speak. But, if you are hell-bent on not having a budget, at least examine your bank and credit card statements to see where you are spending your money, so you will have a clue as to where your money is indeed going.

Then after you have done this, you will see what your real expenses are, and you will be able to determine what you will need as far as income in retirement to support your basic and essential expenses. And that will aide you in determining how much you need to save from the previous step. In fact, when I have meetings with new clients I first ask them if they budget and where their money is going. Then we can get into ways to save and how much they will need to save to retire in the style they desire.

Now here is where you will need to have some faith. And that faith is to plan on Social Security in some form when you do retire. What that will look like by the time I turn 67 is anyone’s guess. It may be similar to what we have now, or Congress may radically alter the way the program is administered. But regardless count on Social Security in some form. But when do you begin to take your benefits? That depends on your individual situation. For many, it means age 62 when they first become eligible to take their benefits. For others, they will wait. One main reason to wait until your full retirement age is you are looking at a 25% to 30% reduction in your benefits if you file as soon as you are eligible. And if you delay your benefits until age 70 you are looking at a 24% increase. And these are not one-time adjustments; they are for the rest of your life, so these are not decisions to be made lightly. But a minimum considers waiting until your designated full retirement age to start collecting your benefits.

And as always you should constantly be examining your portfolio. Why do you ask? Well, when you are younger or perhaps you have a steady job that will still provide you a pension you can take more risks in your investments. But as you get closer to retirement most people tend to become more conservative in nature. That means you must at least on an annual basis look at your portfolio to see if it is aligned to your risk tolerances. If you can stomach some risk, then a portfolio that is 70% equities and 30% cash and bonds might be appropriate for you. After all, people are living longer these days, and your retirement will need a way of replenishing principal and equities are the best way to achieve that and beat inflation at the same time.

But if you are more conservative in nature then a portfolio that is 50% equities and 50% bonds might be more your speed. But even the most conservative person still needs about 30% exposure to equities to maintain a healthy portfolio. Just do not do what so many people before us did and put all your assets in cash, the bank, and bonds. That simply will not suffice in today’s interest rate environment. If you do that then, inflation will indeed get the better of you and your portfolio.

And finally, there is the cost of health care to consider. Pretty much the days of pensions and employer-paid health insurance in retirement are disappearing. So if you plan on retiring before age 65 which is when Medicare will start you need to consider how you will pay for the coverage you need. Now the Affordable Care Act, while far from perfect, did make it so people with a pre-existing condition could get private coverage that was not through an employer possible. Which, is a very good thing. But on the flip side, the coverage is not always affordable or practicable for everyone.

So if you cannot afford to pay for private insurance or you fear that the government will change the law, you may want to consider staying employed until you reach age 65 and will be covered by Medicare. For many to keep their plans one spouse will stay employed while the other retires if they are not age 65 to keep that valuable benefit in place. One way or another you must have some form of healthcare in your golden years of retirement. Otherwise, you are tempting fate as just about everyone will have some pretty serious healthcare expenses to contend with at one point or another.

Everyone can and will retire if they properly plan for it. These are not all of the things that need to be considered but do provide an excellent starting point. As with any major decision they key is to start as early as you can preparing for your retirement. Then automate as much as you can. Take full advantage of the different ways the government has established to encourage saving. Have some faith that Social Security will be there for you. And plan on what you will do for healthcare.

If you do these things, you will be fine, and chances are ahead of most everyone else. And as always, if you have any questions or need any additional assistance, feel free to leave a message here or contact me directly.

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