Financial Abundance

With the market turmoil, I have read several articles about how people are no longer going to be able to retire when they had planned, due to losses in their 401(k) plans and other investments. Last month, I showed you how to test the safety of your 401(k) plan. This month, let’s look at what you can do to help assure that you can maintain financial abundance throughout your retirement .

The biggest mistake that people make with retirement is not adequately planning for this important life event. For earlier generations, retirement often took care of itself. When a person reached age 65, they would retire and live off the income provided by their corporate pension, Social Security and their savings. These sources of income, combined with life spans that seldom reached age 80, provided most people with adequate retirement income.

Today, this approach to retirement is no longer available to most Americans. Not only are corporate pensions a relic of the past, over the past 20 years, Americans have chosen to increase consumption and reduce savings. Thus, only a precarious Social Security payment remains as a staple for retirement.

When I was a business executive, an undisputed business principle was: “failing to plan is planning to fail.” If we did not have a business plan, against which our business was executing, our business venture would likely fail, especially when we went through down business cycles. Today, I see the same problem as people face retirement. The key to a successful retirement is planning. Failure to plan may lead to a retirement that is not the abundant retirement of which you have dreamed.

Let’s look at some of the key questions to consider when planning for retirement:

1. At what age will you retire? Successful retirement planning requires choosing the best age at which to retire. As an employee, this choice is not always yours. However, if you enjoy your work and have the ability to decide how long you will work, working additional years can dramatically increase your financial resources in retirement.

2. Will you work in retirement? Many people wish to have some “employment” activity during retirement. If you can work and still have time to enjoy your other retirement plans, additional income will greatly enhance your retirement years. Decide early on what you might enjoy during your retirement years. If what you wish to do requires special training, begin preparing for it now.

3. When will you begin taking Social Security? Many people take Social Security as soon as they are eligible. This may not be in their best interests. Unless you are in poor health, you are often better off waiting until at least your Full Retirement Age or beyond to begin taking Social Security.

4. How much are your Pension benefits worth? If you are fortunate enough to get a pension, its value will decrease over time unless it is tied to inflation. I recommend spending no more than 2/3rds of your pension and saving the rest. Each year, increase the amount you spend by the rate of inflation.

5. How much retirement income will you need? For an abundant retirement, you will want to maintain your present lifestyle. Determine expense changes you will want in your retirement years. Combine your present expenses with the retirement expense changes. When this amount is inflation adjusted to the year in which you will retire, you will have a good estimate of your retirement income requirements.

6. How much must you save for your retirement? Once you know your required retirement income plus the value of your Social Security and Pension Benefits, you can calculate the required retirement savings. Begin saving now!

7. Will you move to a less expensive home during retirement? You may have a home that was appropriate for raising children. A less expensive home might better fit your retirement needs. If so, the cost difference between your present home and your retirement home can be added to your retirement savings.

While there are other retirement considerations, answering these seven questions will help you begin the retirement planning process. There are many resources to help you plan for retirement. Chapter 9 of Financial Abundance Guide provides a step by step approach to retirement planning. If you want even more detail, I recommend Bud Hebeler’s book, Getting Started in a Financially Secure Retirement.

If you do not have the time or the interest to do your own retirement planning, find a financial adviser, specializing in retirement planning, to help you. If you fail to plan, you are like planning to fail.

As these turbulent financial times are showing, even with good planning our retirement can be precarious. While you cannot control the markets, you can control whether you actively plan for your financial well being. Start you retirement planning today, even if you are already retired!