« David Bach on the CBS Early Show | Main | Day 14 - Asset Allocation »
Day 13 - Planning for Retirement
By JLP | March 8, 2006
For a lot of people the thought of planning for retirement is too scary to think about so they do exactly what they shouldn’t do: nothing. I’m sure for a lot of people retirement is something they think about frequently but really don’t know where to begin to plan for it. Maybe this post will be of help.
Retirement planning isn’t as difficult as it seems. I have put together a list of things you should think about while planning for retirement:
1. Start by at least thinking about what you would like to do during retirement. The amount of money you need to retire on really depends on what you want to do when you retire. For instance, if you want to travel around the world you will need a bigger nest egg than someone who just wants to become a gardner. Also, it is important to think about how long you will be retired. Some people will spend 30 -40 years in retirement! A long retirement will require a lot of money.
I’m 36 years old right now. Something I think would be fun to do when I get older is to either teach classes at the local college or perhaps volunteer to teach younger kids about personal finance. I’m sure my wife and I will want to travel some and I’m sure we will have some hobbies to keep us busy.
2. Try to attach an income number to what you want to do. A lot of people start with what they are currently earning. Are you happy with what you are making now? Is it a comfortable existence? Remember that some of your living expenses will go down (most people will have their homes paid for) and other expenses will go up (health insurance). For that purpose, a lot of planners say to look at needing 70 - 80% of your current income in today’s dollars, meaning you need to adjust for inflation.
3. Decide whether or not to include Social Security payments in the equation. The older you are, the more likely Social Security will be around when you retire. Although I know that some form of Social Security will be in existence by the time I retire, I have no idea how much and I don’t know what percentage of those benefits will be taxable. So, for me, I’m planning for retirement without Social Security. Any Social Security that we do receive will be a bonus.
4. Calculate your number. By this, I mean calculate the amount of money you will need in order to finance the retirement that you desire. Back in January I wrote a post titled How to Calculate Your Number, which might be helpful.
Of course, that’s not all there is to planning for retirement. The amount of information needed to plan for retirement is too broad for a single post. However, I hope that this post at least gave you the basics. There are a lot of really good books out now that can help you in planning for retirement. I’ll list them in a future post. For now, you might want to read what other personal finance bloggers are saying about Planning for Retirement:
My Open Wallet:
CanadianFinancialStuff:
BostonGal’sOpenWallet:
I Need How Much for Retirement?
SeattleSimplicity:
How I Simplify Retirement Planning
FreeMoneyFinance:
Income that Lasts as Long as You Need It
Managing Your IRA for Maximum Gain
Facing Woes in Retirement? Catch-up Moves can Help
A No-Brainer Way to Save for Retirement
3 Rules for a Happy Retirement
PoliticalCalculations:
Estimating Your Life Expectancy
Topics: Retirement Planning |
March 11th, 2006 at 3:30 pm
I work part time, disabled, and have socked away for my retirement. I used to have a 401K, but it now got rolled over to traditional IRA. I’d like to hear how else to save for retirement if I have maxed out my IRA each year. Any thoughts? I don’t make a lot of money, but I’m trying to save all I can. Any of your readers help?
April 24th, 2007 at 3:46 pm
I am a boomer earning minimum wage and I understand that I will never be able to retire voluntarily, and in the actuarily likely event I retire involuntarily (disability) I will become destitute.