Everyone should have a written retirement plan. It doesn’t have to be hundreds of pages long. However, even a short document is helpful. Research shows that people who started with written plans were more satisfied in retirement than others. Most likely it’s because creating a plan makes you carefully think about key issues and have reasonable expectations.
Forbes recent article, “5 Key Retirement Questions You Need To Answer When You're 50 Or Older,” boils it all down to a few key ideas.
How long will retirement last? Your plan will be vastly different, if your life expectancy is 10 years than if it is 30 years. Most folks underestimate average life expectancy, and that can result in financial distress in the later years of retirement. Check online sources to determine the average life expectancy for your age group.
When will you be ready to retire? This answer frequently determines how satisfied you’ll be in retirement. Remember that your age shouldn’t determine your retirement date. It’s retirement readiness that counts.
What are you going to do in retirement? This also includes how you think you’ll spend your financial resources. Create a personalized spending estimate, based on your interests and planned activities. Decide the lifestyle you want in retirement and estimate the current costs. Most people spend less as they age, because they’re less active. However, it might increase later in life because of medical and long-term care expenses. Add inflation into your estimates, because most of what you’ll spend money on in retirement will go up in price over time.
When will you be able to retire? Being able to retire means your income and assets are enough to let you to maintain the desired standard of living. Unfortunately, the retirement date isn’t always in your control, so add in a contingency that you might retire before you want, due to health or layoffs.
It is difficult to estimate medical expenses and long-term care in retirement. Many new retirees underestimate these costs and overestimate what Medicare and other government programs will pay. It’s wise to maximize insurance coverage. Sign up for a Medicare Advantage plan or join traditional Medicare and add a Medicare supplement (Medigap) plan and Part D prescription coverage. Your fixed monthly expenses will be more with the insurance premiums, but your potential maximum out-of-pocket expenses will be less.
How will you manage and spend your retirement savings? You better have an investment strategy and be ready to modify it as circumstances change. Over-spending in the early years of retirement can mean financial distress or major adjustments later in retirement. Develop a spending policy and revisit it each year, as market conditions and your spending change.
Reference: Forbes (April 3, 2018) “5 Key Retirement Questions You Need To Answer When You're 50 Or Older”