Retirement Planning, What are the Basics?
re·tire·ment noun i-ˈtī(-ə)r-mənt
1. a : an act of retiring : the state of being retired
b : withdrawal from one's position or occupation or from active working life
c : the age at which one normally retires retirement in May>
2 : a place of seclusion or privacy
If you could work out your retirement perfectly, what would it look like? Each person answers this question differently. Some people want to travel the world, some want to travel just in the US, some want to stay at home. Some manage a garden, some manage grandkids, and some manage a second career.
What will your retirement be like? What is your definition of retirement? What is your personal retirement story?
Now, how will you make that happen? What is your plan? Day 1 of retirement, what happens?
Traditionally it has been taught that there are three legs of the retirement stool; Pension, Social Security, and personal savings. Like any three legged stool, take one leg away and the stool fails. These three legs are referring to a retiree’s income not a complete plan. Actual planning for retirement includes three areas: income, expenses, and a “catch all” savings.
- Income: How much money will you have coming in at retirement? Often a “rule of thumb” is taught regarding how much do you need, something around 70% of your gross pay. However, that is not the real question. The real question is specifically, how much income will you have. For many retirees today, your income will come from Social Security, a company pension, and your own savings, often a 401k. Therefore, to exactly plan for retirement you will need to know these amounts. You can’t control Social Security or your company pension, so you must plan for them. However, you can control your savings, so act on that.
- Expenses: How much money are you going to spend? This task is very closely related to the dreaded task of budgeting. Think about this, how much do you spend on: home mortgage, car notes, utilities, groceries, medical, TV/internet/cell, credit cards, entertainment, mad money…? Must you have an exact amount calculated? NO, for the most part. However, you must know an accurate monthly projection. Often in planning we use a client’s current monthly take home income to have a simple approach to get started.
- Savings: This is the catch all category. This is the amount of money that leads to an emergency fund, a travel account, or an investment account that grows your net worth. These accounts allow you to deal with the financial crises in life, to have fun, be charitable, and grow net worth. They can be as flexible as your money and imagination allow.
Ask yourself; are you really planning for retirement? Are you controlling what you can control? Are you planning for what you can’t control? Do you know how much monthly income that you can generate in retirement? Do you know your monthly expenses? Have you planned your personal retirement story? If not get started today; you could really enjoy the outcome.
Investment advisory services offered through Sound Financial Strategies Group, Inc.("SFSG"), a Registered Investment Adviser. Securities offered through Comprehensive Asset Management and Servicing, Inc., ("CAMAS") Member FINRA/SIPC. SFSG and CAMAS are separate and unrelated companies. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by CAMAS.
Posted on Thu, July 11, 2013
by Sound Financial Strategies Group