Some people are natural planners - always organized and ticking off the tasks on their lists as they move through the day. For the rest of us, planning is not something that comes easily - even less so when the subject is retirement.
There are a lot of questions to answer about retirement planning and things to think through. It can be tough to know how and where to start.
That’s why it’s helpful to start retirement planning by asking the following four questions. They can help guide you through the process, organize your thoughts and address the issues that will determine what you can do today to set the stage for the future you envision.
Remember, planning for your retirement is a process and it will take time. You probably won’t be able to answer every question in detail right away — so revisit them periodically and begin to fill in the blanks as your goals for the future begin to take shape.
1. What do you plan to do with your time in retirement?
This seems like an obvious question, yet many people don't take the time to think it through.
And, assuming you live a healthy 20- or 30-year retirement, you’ll have a lot of time to fill.
Let’s put the subject of money aside for a moment. Envision the lifestyle that would make you happiest. Is it full of travel and adventure? Artistic endeavors? A second career? Or would you be happier remaining close to home, hosting holiday dinners and watching grandchildren grow?
Make a list of the things you want to pursue in retirement and think about general timeframes and logistics.
Will your spouse join you? How long do you estimate you’ll be able to engage physically in each activity? Your answers will help determine the amount of retirement savings you’ll need to fund your lifestyle.
2. Will you work in retirement?
For many retirees, retirement may not represent a distinct break between working and not working.
Today, many people continue to work beyond typical retirement age — some out of necessity, while others simply enjoy the sense of purpose, social interaction and achievement that working can provide.
Some people transition into retirement over a longer period; choosing part-time work or volunteering. Others will test their entrepreneurial spirit with a new business venture.
Obviously, whether you continue to work in retirement has a significant impact on your financial plan.
While it would seem that continuing to earn an income as a senior would prevent you from having to save as much early on, it may also make you ineligible to collect Social Security while you are working.
Be sure to think through all the pros and cons of continuing to work in retirement. It may be wise to consult with a financial professional to ensure you are aware of all the angles.
3. Who will depend on you for personal and financial support?
Roles and norms that characterize the American family are changing. It’s becoming more common for children to live with their parents well into their 20s.
Many pre-retirees find themselves providing support or care for their own parents. Grandparents may take on a larger role in raising grandchildren.
While many of these situations happen suddenly and unexpectedly, it may be possible for you to take measures to plan for or avoid these circumstances. Thinking about it now and exploring the potential cost of supporting loved ones can help you formulate your financial plan accordingly.
4. Where will you live once retired?
To a great extent, your answers to the first three questions will help determine the answer to this one. If you have a job you love and you plan to continue working, you may want to stay put. If you have extended family members who need your support, you may need to stay put.
For people who are free to live where they choose, making that determination can have a big impact on finances. Consider whether it makes sense to remain in your current home, relocate or downsize. If you plan to travel much, maybe renting makes more sense.
Knowing where you plan to live geographically is important, as well. Cost of living can vary widely from city to city and country to country.
If your heart is set on living in Midtown Manhattan, you’ll need to approach your financial plan differently than if you intend to live in a place with a lower cost of living, like Wyoming, or an even more budget-friendly place — like Ecuador.
Consider enlisting some help from a professional
While the four key questions help raise possible financial issues to the surface, there are many other aspects of retirement you’ll need to think about.
For example, at what age should you begin taking Social Security? What’s the best move to make with your 401(k) accounts once you’ve retired?Given possible market fluctuation, what is the best strategy to establish a steady, reliable income stream?
Some of these questions can be answered only as you’re nearing retirement, but some of them may depend on actions you take now.
Consider visiting with a financial advisor who is familiar with the ins and outs of retirement planning, distributions and taxes to share your plans and ensure that you’re on course to achieve your goals.