By Tom Sponsel, CPA/ABV, CFF
Welcome to Part 1 of a multipart series on Retirement: Planning, Executing and Enjoying!
It’s never too early to start planning for retirement. Most advisors believe you should start your analysis at least 10 years before your desired retirement date. Of course, you should consider such questions as when you’ll be retiring, where you’ll be living then and what an enjoyable retirement looks like for you and your spouse. Another vital first step is looking at your current spending habits and what those similar expenses will look like in your retirement phase of life.
You’re probably spending more now than you think. Perhaps you should dial it back a bit and focus more on saving so you can have the retirement style of living you desire. Most people think they know their spending and where their money goes, but those same folks refuse to put it down on paper as proof and expose it for further analysis.
Most people spend a significant amount of time worrying about their retirement income, but they spend very little time on really analyzing their spending habits. They take a look at what kind of income they will have in retirement, but they do not prepare themselves for reducing their spending in order to “financially survive” in retirement. They seek to travel but make no provisions for such in their planning and retirement budgeting.
Analyze your social security benefits, 401k account and any other investments you may have. If you can afford to make more contributions now, you should. Maybe cut back on those Starbucks lattes and make eating out a weekend treat rather than a nightly dinner.
We recommend preparing a summary of expenses; one with a column for Current Spending and another column for Post-Retirement Spending. When placed side-by-side, the comparative analysis can be eye-opening, especially if both columns total the same and you expect less income in retirement. But you have time to change that projected result!
Tightening up your household budget now will allow for a more enjoyable retirement lifestyle. Do you plan on traveling, going out on the town, taking up new hobbies? Also consider the cost of healthcare, as that becomes one of our biggest expenses as we grow older.
Start tracking your spending on a monthly basis and make a personal financial statement. Go over it with someone other than your spouse so you have an impartial opinion. Sit down with a trusted financial advisor to determine what income you’ll generate during retirement and how you can better save now.
It’s better to be safe than sorry. Start planning now to ensure a bright future ahead! You have worked hard, so you should be able to enjoy retired life with peace of mind.