Make Your Money Last series - Step #1: Plan Your Retirement
Here's the first step to Make Your Money Last: Before you retire, plan your retirement. This sounds so obvious, but so few people do it.
Think about it: If you retire at age 60, you may be facing a 40-year retirement – that’s probably longer than your entire career! The typical answer of “taking it easy and playing golf” may not be enough for you, especially if you had an active career. Chasing a little white ball around a golf course can get pretty old.
You may want more. You may miss the office banter, the teamwork, the difficult decisions. You may need a new challenge, perhaps the something you always wanted to do but never had the time.
Why You Need to Plan Your Retirement
Why is it so important to plan your retirement before you retire? Imagine if you don't: You wake up on Day One of your retirement and wonder, “Now what?” That's one way to get that deer in the headlights feeling!
Industry research suggests that most executives who sell their businesses soon regret their decision. Why? It’s usually because in the course of selling their business they’ve paid attention to every last detail, except one: “What will I do next?” They wake up the next day and miss the adrenaline, the challenge. Retirement can be a difficult transition, especially if you haven’t planned your next steps.
Just as important are the financial implications. What will retirement cost? How do you know how to financial plan for your retirement if you don’t know what you’ll be doing?
Here’s another common mistake: Typically, people will look at what they spend now and figure they will spend about 80% of that during retirement. After all, that’s the number popularized in the media. Bad idea. Your retirement may look nothing like your work life. Maybe you took a train downtown to your office for 35 years, but you’re thinking of a retirement filled with travel in an RV. Can you really base the RV retirement on your previous life in an office?
Let’s say your plans for retirement are a bit more sedate. Even if you continue to live in the same house and don’t plan to travel, your retirement may be filled with family events. Maybe those events involve grandchildren, and where there are grandchildren, there are gifts, right? Well, those cost money, too. Plan for it!
Try Out Your Retirement
Before you retire, give serious thought to what you actually plan to do during retirement. Once you have an idea, try it out. Take a week or two of vacation to live out your retirement. Does it fit? Can you see doing it for decades? Or do you need more?
Then take the next step: budget what it might cost. Be conservative. Don't base it entirely on your past life. Start with a clean sheet of paper and construct a budget.
The next step is logical: Turn that budget into a financial plan. That’s when retirement planning really gets interesting! That’s our next video and blog.